ETF Strategies To Follow Amid The Coronavirus Crisis

The coronavirus outbreak has spread to 158 countries and territories, with 171,881 confirmed cases and the death toll rising to 6,526. The above-mentioned figures justify the terming of the outbreak as a ‘pandemic’ by WHO.

The outbreak is believed to have disrupted global supply chains and economic activity. Moreover, the rate at which the outbreak is spreading in Italy, France, Spain, Germany, United Kingdom and the United States, it is leading to increased speculations of a global recession by analysts. The rapid spread of the virus is leading to increasing travel bans and cancellation of large events as well as shutting down of schools, colleges, universities, restaurants and bars and shopping malls. In such a scenario, slowing global economic growth looks inevitable. The sectors that are expected to be worst hit by the virus include the airlines, travel and tourism, and consumer discretionary (read: ETFs to the Rescue Amid Coronavirus-Led Volatility).

In this regard, JPMorgan (NYSE:JPM) estimates that a recession will hit the U.S. and European economies by July. According to this financial services company, the U.S. economy may contract 2% in the first quarter and 3% in the second. Meanwhile, it expects the eurozone economy to shrink 1.8% and 3.3% in the same periods.

However, central banks and governments around the globe are taking a few measures. For instance, the Fed has opted for emergency rate cuts twice in less than two weeks. The central bank has trimmed rates to a target range of 0% to 0.25%.

In such a scenario, investors can take a look at the following ETF strategies to combat the ongoing coronavirus crisis:

Play the Inverse ETFs

The virus-induced volatility is boosting demand for inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can earn higher returns in a shorter period of time, provided the trend remains favorable. However, these funds run the risk of huge losses compared with traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG, ProShares UltraShort Dow30 DXD and ProShares UltraPro Short Dow30 SDOW (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).

Dividend ETFs to the Rescue

In a low-interest rate environment, dividend investing becomes a hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund DGRW, FlexShares Quality Dividend Defensive Index Fund QDEF, WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD might be compelling picks (read: 7 Dividend ETFs That Offer Growth in 2020).

The Most Popular Safe-Haven: Gold ETFs

Price of precious metals like gold rises during chaotic market conditions as they are considered safe-haven assets. In the present low-rate environment, gold should do well. Also, there are talks that inflation will creep up soon. And gold is viewed as a hedge against inflation as well. Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (NYSE:GLD) (TSXV:GLD) , iShares Gold Trust IAU, SPDR Gold MiniShares Trust (TSXV:GLD) and GraniteShares Gold Trust BAR are some of the popular ETFs (read: Will the Gold ETFs Rally Stay as Coronavirus-Led Inflows Rise?).

Feel Safe With Low-Volatility ETFs

Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly-safe products generally do not surge in bull market conditions but offer protection against unpredictable conditions. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options iShares Edge MSCI Min Vol USA ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF EFAV, iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETF SPHD (read: Is it the Right Time to Buy Global Low-Volatility ETFs?).

Bet on the Non-Cyclical Consumer Staple Sector

This non-cyclical sector is likely to be less hammered by any market crash. The sector can emerge as a true safe haven amid the latest crisis as even people on self-quarantine need daily essentials. Investors can consider The Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC, iShares U.S. Consumer Goods ETF IYK and Invesco S&P 500 Equal Weight Consumer Staples ETF RHS (read: Beat Virus With 2 Sector ETFs & Stocks That Survived 2008 Crisis).

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