After a strong run-up last year, the U.S. stocks were off to a weak start in 2015. The relentless slide in crude oil, political turmoil in Greece, the tumbling Euro, and strong dollar weighed on investors sentiment, bringing volatility back to the market.
Oil price continued to fall in the New Year, plunging more than half of its value since its peak in June 2014. U.S. oil fell below $49 per barrel for the first time since April 2009 while Brent crude slid to less than $52 per barrel. Higher U.S. shale output as well as record oil production from Russia and Iraq raised fears of global glut.
Renewed fears of Greek departure from the Euro zone, and hopes of new stimulus from ECB to prop up its flagging economy added to the woes, pushing the euro to a nine-year low against the greenback. The global risk-off trade is compelling investors to dump the riskier assets and take a flight to safety. This is especially true as both the S&P 500 and Dow Jones shed close to 1.9% in just two days of trading in the New Year. In fact, the ETF tracking the S&P 500 (ARCA:SPY) pulled out nearly $2 billion in AUM to start the year while the small cap iShares Russell 2000 (ARCA:IWM) saw an outflow of nearly $364 million.
Given heightened volatility and uncertainty, we have highlighted three ETFs that investors should consider in their portfolio, especially if oil prices continue to slide or tensions in Greece escalate. These products appear safe in the current market turbulence and would be in focus in the days ahead.
SPDR Gold Trust ETF (ARCA:GLD)
Goldis often viewed as a store of value and a hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick to play in the market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $26.7 billion and heavy volume of nearly 6.7 million shares a day. It charges 40 bps in fees per year from investors.
The ETF gained about 2% in the first two trading sessions of 2015. Though the near-term outlook looks promising on the ongoing chaos and rising Chinese demand for the yellow metal ahead of the Lunar New Year holiday, the long-term outlook is negative given the strong dollar and the prospect of rising interest rates. As a result, GLD currently has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
CurrencyShares Japanese Yen Trust (ARCA:FXY)
Yen is considered a safe haven currency in times of uncertainty. Investors could tap this via FXY as this ETF appears a great way to play a future rise in the yen relative to the US Dollar. It tracks the movement of the yen relative to the U.S. dollar, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Japanese yen.
The fund charges 40 bps a year in fees and sees a good volume of roughly 138,000 shares per day. The product has accumulated $85.2 million in its total asset base and gained nearly 0.7% in Monday trading session. It has a Zacks ETF Rank of 4 with a High risk outlook as the ultra-loose monetary policy by the Bank of Japan will continue to weigh on the currency this year.
iShares 20+ Year Treasury Bond ETF (ARCA:TLT)
The U.S. government bonds tracking the long end of the yield curve often carry a safe haven status. These bonds have enjoyed the strongest annual rally in three years in 2014 and are continuing their winning streak in 2015 as well. The ultra-popular long-term Treasury ETF – TLT – added 2.7% in the first two trading sessions of the New Year.
It tracks the Barclays (LONDON:BARC) Capital U.S. 20+ Year Treasury Bond Index and has AUM of over $6.4 billion. Volume is also solid trading in roughly 7.8 million shares a day. Expense ratio came in at 0.15%. Holding 29 securities in its basket, the fund focuses on the top credit rating bonds (AA+ and higher). The average maturity comes in at 27.03 years and the effective duration is 17.66 years. The product has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.