North Korea's Nuclear Test Drives Safe Haven ETFs Higher

North Korea conducted its sixth nuclear test, that of a hydrogen bomb, which can be mounted on an Inter Continental Ballistic Missile, on September 3, 2017. Not only did it trigger an artificial earthquake of magnitude 6.3 but also rattled the markets, with Asian stocks falling while yen and gold surging.

Only a few days ago North Korea had launched a missile that flew over Japanese airspace. U.S. President Donald Trump has continuously suggested that Kim Jong-Un’s threats will be met with military actions if he threatens to harm U.S. territories or any of its allies.

Trump’s Trade war

In his latest proposed action, Trump has suggested that he could consider stopping trade with countries doing business with North Korea. This could impact China greatly as it is North Korea’s biggest trade partner.

In a separate development, Trump’s administration has taken an unconventional path to protectionism. It is formal investigating if China is violating international trade laws relating to intellectual property rights. This could significantly impact U.S.-China trade relations (read: Trump Takes First Step Toward Trade War? ETFs to be Impacted).

Global Condemnation

Trump’s Japanese counterpart, Shinzo Abe has vowed to strengthen its military defense systems. Moreover, global leaders including South Korea’s Moon Jae-In and United Kingdom’s Theresa May have called for stronger UN sanctions against the rogue nation (read: Can South Korea ETFs Continue Their Rally?).

Although China backed UN sanctions against North Korea, it is of the view that North Korea’s economic downfall would greatly affect its financial health. This test was conducted as China hosted a BRICS summit.

Safer assets have been witnessing strong movement owing to geopolitical risks because analysts are confused about how to price in these risks in their portfolios. Adding to the agony is the unpredictable nature of the North Korean premier, which makes it difficult to predict the future course of this prevailing set of events.

Let us now discuss a few ETFs that were impacted due to the nuclear test.

SPDR Gold Shares (HK:2840) ETF (V:GLD)

This fund offers physical exposure to gold. It seeks to track the performance of the gold bullion and might turn out to be a cost-efficient way of gaining exposure to the commodity even after accounting for the fund’s expenses (read: What Lies Ahead for Gold ETFs?).

It has AUM of $35.27 billion and charges a fee of 40 basis points a year. It has returned 14.11% year to date but has lost 2.06% in the last one year (as of September 1, 2017). As such, GLD (NYSE:GLD) currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Gold Trust ETF (AX:IAU)

This ETF seeks to provide exposure to prices of the gold bullion and can be used as a means to attain portfolio diversification or achieve hedging targets.

It has AUM of $9.27 billion and charges a fee of 25 basis points a year. It has returned 14.25% year to date but has lost 2% in the last one year (as of September 1, 2017). As such, IAU currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

CurrencyShares Japanese Yen Trust FXY

This ETF seeks to provide exposure to the Japanese yen.

It has AUM of $117.75 million and charges a fee of 40 basis points a year. It has returned 6.50% year to date but has lost 7.93% in the last one year (as of September 1, 2017). As such, FXY currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

U.S. treasuries were not trading due to the Labor Day holiday but are expected to be impacted due to rising geopolitical tensions and to benefit from safe haven demand (read: What's in Store for the U.S. Treasury Bond ETFs?).

iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF IEF

This fund seeks to provide exposure to intermediate term U.S. treasury bonds.

It has AUM of $7.62 billion and charges a fee of 15 basis points a year. It has an effective duration of 7.62 years and a weighted average maturity of 8.36 years. The fund has returned 2.85% year to date but has lost 3.80% in the last one year (as of September 1, 2017). IEF currently has a Zacks ETF Rank #3 with a High risk outlook.

iShares U.S. Treasury Bond ETF GOVT

This fund seeks to provide exposure to U.S. treasury bonds in a wide maturity spectrum.

It has AUM of $5.08 billion and charges a fee of 15 basis points a year. It has an effective duration of 6.08 years and a weighted average maturity of 7.61 years. The fund has returned 1.97% year to date but has lost 2.75% in the last one year (as of September 1, 2017). GOVT currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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