The tensions in the Middle East escalated after Israel launched a wave of airstrikes on Iran, triggering a sharp sell-off across global markets. Iran is preparing to retaliate as it has launched around 100 drones toward Israel, raising fears of a broader regional conflict.
Markets reacted swiftly to the news, with the three major gauges plunging more than 1% in pre-market trade today. Meanwhile, the U.S. dollar, Japanese yen and Swiss franc all strengthened, while crude prices spiked sharply amid fears of potential supply disruptions. Gold surged to its highest level since early May and U.S. Treasury price also rose. Investors are flocking to safe-haven bids, which offer protection in times of heightened volatility.
Against such a backdrop, we have highlighted five safe-haven ETFs that investors should add to their portfolio, especially if Middle East tensions continue to escalate. These products will likely benefit from the crisis and will be in focus in the weeks ahead.
Gold - SPDR Gold Trust ETF (GLD)
Gold, viewed as a safe haven, has been on a strong rally this year, reaching new all-time highs on several occasions, buoyed by trade gyrations. The yellow metal serves as a hedge against market turmoil and is often used as a means of preserving wealth during times of financial and political uncertainty, typically performing well when other asset classes struggle. As such, the ultra-popular product tracking this bullion, like GLD, could be an interesting pick. The fund tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank and JPMorgan Chase Bank.
GLD is an ultra-popular gold ETF with an AUM of $99.9 billion and a heavy volume of about 11 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Gold Surges Amid Global Risks: ETFs to Buy).
Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF (TLT)
Products tracking the long end of the yield curve often provide a safe haven. The 10-year Treasury yields dropped to a one-month low of 4.31%, pushing bonds higher. TLT tracks the ICE U.S. Treasury 20+ Year Bond Index and has an AUM of $48.6 billion. Holding 42 securities in its basket, the fund focuses on the top credit-rating bonds with an average maturity of 25.78 years and an effective duration of 15.70 years. The expense ratio comes in at 0.15%, and the average daily volume is heavy at around 43 million shares. However, TLT currently has a Zacks ETF Rank #4 (Sell).
Dollar - Invesco DB US Dollar Index Bullish Fund (UUP)
After hitting a 3-year low in yesterday's trading session, the U.S. dollar rose 0.6% (at the time of writing) against a basket of major currencies on news that Israel had launched strikes on Iran. Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, Invesco DB US Dollar Index Bullish Fund allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound (read: ETFs on the Move Post U.S.-China Trade Deal).
The fund managed an asset base of $200.2 million, with an average daily volume of around 948,000 shares. UUP charges 78 bps of annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
Yen - Invesco Currencyshares Japanese Yen Trust (FXY)
The Japanese yen is considered a safe-haven currency in times of uncertainty. Investors could tap this via FXY, which appears to be a great way to play a future rise in the yen. It tracks the price of the Japanese yen and charges 40 bps a year in fees. The fund sees a good volume of roughly 340,000 shares per day and has accumulated $856 million in its asset base. FXY has a Zacks ETF Rank #3 with a Medium risk outlook.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports SPDR Gold Shares (GLD): ETF Research Reports Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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