Go for Safe-Haven ETFs Amid Rising Geopolitical Risks

Sanghamitra Saha

Geopolitical tensions between Iran and the United States flared up last week after the United States and Iranian officials said the latter downed a U.S. military drone near the Strait of Hormuz. In any case, both the countries have been in disagreement for about a year (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).

Last August, the United States put into effect sanctions against Iran, targeting the Islamic Republic’s currency and key industries. These sanctions are part of President Donald Trump’s initiative to put an embargo on Iran’s missile and nuclear programs, and diminish its influence in the Middle East.

Then in November, the United States formally levied the second part of the sanctions that banned import of Iranian energy, though it offered temporary waivers to eight key buyers. But, in April 2019, Washington announced it won’t renew waivers previously granted on Iran oil import sanctions (read: US Tightens Sanctions on Iran: Country ETFs to Gain/Suffer).

Most recently, Trump announced that the United States will levy "major" incremental sanctions on Iran in order to prevent the country from procuring nuclear weapons. It followed the announcement of Iran that said that it would surpass internationally agreed limitson its nuclear program.

Things are getting sour on the US-China relation front too. Just before the G-20 meet, five additional Chinese companies are barred frompurchasing U.S.-made components. Investors should also note that stocks are near record highs amid dovish Fed comments. So, if anything negative comes out of the upcoming US-China meeting and the US-Iran relation, global equities may skid due to overvaluation.

Against this backdrop, investors could bank on safe-haven ETFs.

Treasury Bonds 
 
iShares 20+ Year Treasury Bond ETF TLT

Heightened global uncertainty brings this safe asset in the limelight. Rising prospects of Fed rate cuts this year and geopolitical concerns may drive treasury valuation. Safe-haven rally is likely to result in a low-rate environment. Apart from TLT, investors can consider 25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ) and Vanguard Extended Duration Treasury ETF (EDV).

Gold

SPDR Gold Trust ETF GLD
 
Gold is often viewed as a safe-haven asset offering protection against financial risks, and may perform well on heightened market volatility. Investors should note that the U.S. dollar is under pressure on a dovish central bank. Invesco DB US Dollar Index Bullish Fund (UUP) was down about 1.5% in the past five days. This should prove advantageous for gold investors as the metal’s price is usually inversely related to the greenback.

GLD added about 3.3% in the past five days. Apart from GLD, investors can consider iShares Gold Trust (IAU), another popular choice in this space that has returned about 3.4% in the past month.

Yen
 
CurrencyShares Japanese Yen ETF (FXY)

The Japanese currency, yen, is often considered a classic safe-haven asset that gained some strength lately.  Also, a dovish Fed dampened the dollar to some extent and boosted yen. Investors can target this currency via FXY, which measures the value of the yen against the price of the greenback. In fact, the fund has advanced about 0.7% in the past five days (see: all the Currency ETFs here).

Utilities

Utilities Select Sector SPDR Fund (XLU)

This sector performs great in a low-rate environment and serves better if investing sentiments are edgy. The fund XLU yields 3.3% annually.

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PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
 
Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports
 
SPDR Gold Shares (GLD): ETF Research Reports
 
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
 
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
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