ETFs Outperforming the Sell-Off

Author: Nikki-Lee Birdsey

Estimated read time: 3 minutes

Publication date: 17th Mar 2020 09:47 GMT+1


Due to the Coronavirus global pandemic the S&P 500 has been in correction since its record high close on February 19. Last week, mandatory circuit breakers were triggered twice when the S&P fell more than 7% than the previous day’s closing price. Worried investors are selling off more and more stocks as countries around the world institute mandatory lock-downs, restrict international travel and take further extraordinary measures in order to contain the spread of Covid-19.

Many are now predicting a recession, and on Sunday March 15 the U.S. Federal Reserve slashed interest rates to near zero, or 0 to 0.25%, and pledged to buy government debt to calm fears. (For more, see also: How to Invest in a Recession).

But on Monday financial markets plummeted about 12%, marking the worst day in trading since the beginning of the Coronavirus crisis. Further worrying indicators included the European Union chief considering sealing the bloc off from almost all international travel, and President Trump in the United States telling Americans to avoid gatherings of over 10 people as schools, restaurants and stores closed.

The plunge in the markets has brought down many equity-linked ETFs, but some ETFs remain relatively safe for now. ETFs that are outperforming the sell-off include ETFs that hold bonds and gold.

 

Bond ETFs

Despite the Dow falling 3,000 points so far, bond ETFs are still posting gains as of close of trading Monday. The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) is up 6.48% and the iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF) is up 2.64%. These fixed-income ETFs are backed by the U.S. government and are considered among the safest of investments during high market volatility. As the unknown effects of the Coronavirus pandemic continue to panic investors, the market will experience further decline with talks of an economic recession mounting.

 

Gold ETFs

Another safe haven asset is gold. Safe haven investments are expected to retain or increase in value during times of market volatility. These investments offer protection during market downswings, and include precious metals and currencies. However, these assets are not fail safes, and still react differently depending on the market situation. Currently, gold ETFs are in relatively good shape. The Global X Gold Explorers ETF (AMEX: GOEX) was up 15.46% as of close of trading on Monday March 16. The iShares MSCI Global Gold Miners ETF (NASDAQ: RING) was also up 8.33%.

Other sectors to watch during this turbulent time are defensive stocks. Defensive stocks traditionally include utility, healthcare, biotechnology and consumer goods companies. There is news coverage of widespread panic-buying and consumer stockpiling in many countries affected by the Covid-19 pandemic. And regardless of a cratering market, consumers will still buy health products, food and basic home supplies. Cash is another low-risk investment, but it offers no real return and is negatively affected by inflation rates.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.