Will Virus Infect Q1 Earnings? Multi-Asset ETFs To Play

Markets have been edgy since the start of the New Year, thanks to rising geopolitical tensions in the Middle East and the coronavirus outbreak. Wall Street did hit record highs during this spell occasionally due to the signing of trade deals and the volley of policy easing by central banks to put a check on virus-induced slowdown.

Overall, SPDR S&P 500 ETF (NYSE:SPY) (ASX:SPY) , SPDR Dow Jones Industrial Average (NYSE:DIA) ETF (TSXV:DIA) , Invesco QQQ Trust QQQ and all-world ETF iShares MSCI ACWI ETF ACWI have added about 2.5%, 1.5%, 5.6% and 0.8%, respectively, so far this year (as of Feb 5, 2020).

Coronavirus to Weigh on 1Q2020 Earnings?

But with the economic impact of coronavirus expected to be huge, investors may see an equity market rout in the near term. Starting from car to aerospace, tourism, retail and entertainment, all industries are likely to suffer as China has been facing travel restrictions from many countries. Also, several cities in the country are under lockdown. A number of factories have also been shut down as well.

So, though the People’s Bank of China has injected $1.7 trillion yuan ($242.9 billion) into the economy via reverse repos and cut interest rates on reverse repurchase agreements by 10 bps and emerging markets like Thailand are cutting rates, fears of a global slowdown are rife now (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

This is especially true given that China supplies parts for many manufacturing industries. Notably, Hyundai, the world's fifth biggest car maker, shut all of its factories in South Korea because of the shortage in Chinese components.

Should You Limit Your Portfolio’s Equity Exposure?

Brokerage houses like JPMorgan Chase & Co (NYSE:JPM). believe you should. Its analysts recommend “reining in portfolio risk with a cut in active equity weights to 5% from 7% and an increase in corporate bonds to minus 5% from minus 7%.” JPMorgan sees a considerable chance of “an unexpected re-acceleration of new coronavirus cases as factories reopen in China and more people come into contact with each other.”

If the factories do not reopen, the economic impact would be more crippling.”The ripple effect of China’s virus-induced disruption on the rest of the world in case of a more acute scenario is likely to be huge, per JP Morgan (read: U.S. Manufacturing Back to Health: ETF Winners & Losers).

Should You Diversify Through Multi-Asset ETFs?

Investors will definitely want to know about ways that could save them in case the virus wreaks more havoc. In this regard, we highlight a few multi-asset ETFs that could offer investors great returns in the form of capital appreciation and income (read: Pick These US Small-Cap ETFs to Fight the Coronavirus Scare).

Notably, the multi-asset strategy looks to boost returns and lower overall volatility in portfolios. These products normally provide a high level of current income and take care of downside risks of a specific asset class. These also cater to various asset classes (equity, fixed income and alternative securities), which have low correlation to each other.

Below we highlight a few multi-asset ETFs that could offer investors great returns in the form of income as well as diversification.

YieldShares High Income ETF YYY

This fund yields about 9.06% annually. It holds 30 closed-end funds ranked the highest by the ISE on the basis of three criteria — fund yield, discount to net asset value and liquidity. Around 75% of the fund is targeted at debt securities, while the rest are in equities.

Arrow Dow Jones Global Yield ETF GYLD

This fund provides almost equal-weight exposure across five global areas — equities, real estate, alternatives, sovereign debt and corporate debt. This is easily done by tracking the Dow Jones Global Composite Yield Index. The fund offers an annual dividend yield of 8.57%.

iShares Morningstar Multi-Asset Income ETF IYLD

The fund is broadly diversified and seeks to deliver high current income while maintaining long-term capital appreciation. The product yields about 4.94% annually. The United States takes the top spot with 52.99% allocation followed by 2.78% in United Kingdom and 2.47% in Russia.

Invesco DWA Tactical Multi-Asset Income ETF DWIN

The underlying Dorsey Wright Multi-Asset Income index may invest in both fixed income and equity income ETFs, including those holding investment grade and high yield bonds, fixed-rate preferred shares, dividend-paying equities, U.S. Treasuries, MLPs and real estate investment trusts. It rotates between income-oriented segments, depending on market momentum as well as yield criteria. The fund yields 4.73% annually.

Principal Spectrum Preferred Securities Active ETF PREF

The fund is active and does not track a benchmark. It yields around 4.57% annually. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in preferred securities at the time of purchase (see all Convertibles/CEFs/Preferred Stock ETFs here).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>