Go Defensive With These ETFs as Stock Rout May Worsen

Sanghamitra Saha

27 February 2020 at 1:30 pm

China’s coronavirus outbreak is taking an uglier shape than initially apprehended. The virus is spreading fast, with new cases being reported by countries outside the epicenter. South Korea, Thailand and Japan in Asia have been weak spots, while Italy and Spain in Europe and some Middle-East countries are also reporting confirmed cases (read: Can South Korean ETFs Survive the Covid-19 Havoc?).

Market watchers got busy accessing the economic fallout of the virus spread. Apple AAPL, Microsoft MSFT, Tesla TSLA, McDonalds MCD, Yum China YUMC, Starbucks SBUX, Walt Disney DIS, United Airlines Holdings Inc. UAL and Mastercard Inc MA are some of the companies that are going to be hit hard by the outbreak (read: Virus Erases $1.7T From Wall Street: Play Multi-Asset ETFs).

This led to a bloodbath in global markets. The S&P 500 lost about $1.737 trillion of its value in the first two days of this week, according to S&P Dow Jones Indices. Now the question is how long this selloff will last. Goldman and Citi strategists cautioned that the biggest selloff in U.S. stocks in two years has just started.

Notably, the S&P 500’s average correction has lasted four months, but this time, the index might take longer to gain stability. The first-quarter corporate earnings results will show the impact of the outbreak to a large extent.

Against this backdrop, one can consider the below-mentioned defensive ETFs until the broader market steadies. These funds remained better-positioned than the S&P 500 in the past five days (as of Feb 27, 2020) (read: Global Bond ETFs in a Sweet Spot on Coronavirus Scare).

IQ Hedge Multi-Strategy Tracker ETF QAI

The underlying IQ Hedge Multi-Strategy Index seeks to replicate the risk-adjusted return characteristics of the collective hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets. The fund has an AUM of $787.8 million and charges 80 bps in fees.

AGFiQ US Market Neutral Anti-Beta Fund BTAL

The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. The AUM of the fund is $193.9 million and it charges 82 bps in fees.

Franklin Liberty Systematic Style Premia ETF FLSP

The actively-managed Franklin Liberty Systematic Style Premia ETF seeks to achieve absolute return by allocating assets across two underlying alternative investment strategies, which represent top-down and bottom-up approaches to capturing factor-based risk premia.The fund has an AUM of $54.9 million and charges 65 bps in fees.

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