Here's how to play the trade war with ETFs

It could be a bumpy ride, but there are approaches that range from nearly risk-free to extremely hands-on.

  • By Andrea Riquier,
  • MarketWatch
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Looking for an investing strategy as the U.S.-China trade war rolls on? There may be an ETF for that, whether you feel most comfortable with as little risk as possible, or want to test-drive an exotic instrument devised for market turbulence like this.

One of the most time-worn strategies is to follow the herd into what’s often called safe havens – assets that may not gain much in value, but should retain their value and benefit a bit when investor shy away from riskier choices.

The yield on the 10-year U.S. Treasury note has declined about 26 basis points since the start of August. Yields fall as bond prices rise, so the onslaught of investor demand has pushed prices up nearly 3% in that time, according to FactSet. In the month to date, gold ETFs like The iShares Gold Trust (IAU) and SPDR Gold Shares (GLD) have both gained more than 3% in that time. GLD received the third-highest share of inflows among all ETFs on Monday, according to www.xtf.com.

On the slightly less risk-averse side, Jim Ross, chairman of the Global SPDR business at State Street, suggests looking to stocks that have less exposure to global revenues in general, and to China revenues in particular. That could include sectors like utilities or consumer staples which should hold up no matter what the market cycle. (A consumer staples fund, the Select Sector SPDR (XLP) on Monday had the seventh-highest share of inflows.)

“These things have proven to be very quickly self-correcting,” Ross told Marketwatch on Monday after U.S. stocks saw their worst day this year. “My view is invest and build your portfolio for the long term and not lose sleep over what is a very strange 3% down day.”

For investors looking to be a bit more proactive, Will Geisdorf, ETF strategist at Ned Davis Research, suggested considering investing in Vietnam, a rare “beneficiary” of the trade war, in his words, thanks to China’s practice of re-routing some exports to skirt U.S. tariffs. Van Eck’s Vectors Vietnam ETF (VNM) has the most concentrated exposure to that country.

A more creative suggestion from Geisdorf is the AGFiQ US Market Neutral Anti-Beta fund (BTAL). It aims to manage beta, a measurement of how risky a particular stock or other security is in relation to the rest of the market. BTAL holds long positions on stocks with the lowest beta and short positions on those with the highest beta – that is, it bets that those securities will decline in value.

BTAL has done well in the recent choppiness – it’s up 6.6% over the past month, according to FactSet. The index on which it’s based, Dow Jones U.S. Thematic Market Neutral Anti-Beta Total Return Index, rebalances monthly.

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