The equity markets are coming off one of their stormiest weeks in recent years. The past month has been particularly difficult as the S&P 500 now sits 8.9% below where it was a month ago. However, there are a number of ETFs that have emerged from the unrest relatively undamaged. Here is why these ETFs have weathered the storm.
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Flight to Safety
The traditional play for investors in times of uncertainty has been to pile into gold. And with gold hitting record highs, the prospects for gold mining companies have become much brighter.
With the advent of ETFs, investors looking to sink money into gold mining companies can diversify their bet by looking at a fund such as the Market Vectors Gold Miners ETF (NYSE:GDX). GDX was up 6.9% last week and is up 18.3% from this time last year. With gold miners holding their costs in check and the price of this precious metal running up the charts, profit margins stand to swell in the coming quarters.
Standard & Poor's may have downgraded the debt of the United States by one notch, but that has not shaken investor confidence in Treasuries. The iShares Barclays TIPS Bond Fund (NYSE:TIP) is actually up 4.4% over the course of the past month. Despite the doubts of S&P, investors apparently believe their money is safer in Treasuries than being elsewhere in the market. The 3.92% yield that TIP carries is also attractive for income investors. (Lower levels of liquidity in exchange-traded funds make it harder to trade them profitably. For more, see ETF Liquidity: Why It Matters.)
Bailing into Bonds
Despondent investors have pushed equity prices considerably lower over the last month, but many bond plays have held their ground similar. For instance, the iShares Barclays 1-3 Year Credit Bond Fund (NYSE:CSJ) was only down 0.5% last week and 0.2% from a month ago.
The ETF is rich in investment grade corporate bonds and is a relatively conservative investment proposition. Aside from a brief period late in 2008, CSJ has traded in a fairly tight range since its inception in January of 2007. CSJ has a dividend yield of 2.1%.
High yield bonds have taken a bit of a hit over the past month, but they have still fared better than the S&P 500. The SPDR High Yield Bond ETF (NYSE:JNK) is down 4.8% over the course of the last month, but only down slightly from a week ago. This ETF is bound to trade in a wider range than CSJ, but investors will be compensated with an 8.0% yield and JNK is shaping up to be more resilient than the equity markets at the moment.
The Bottom Line
The volatility that has been present in recent days has certainly been unsettling, but it does not mandate that investors stuff their cash under mattresses. With the hundreds of ETFs that we have at our disposal, there are a number of options that may prove to be perfectly suitable under these conditions. These are just examples of a few ETFs that investors can resort to when weathering a storm. (For related reading, see An Introduction To Corporate Bond ETFs.)
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