In recent weeks, President Trump has announced plans to institute numerous tariffs. These plans include both broad categories of goods, such as steel and aluminum, and also goods from specifically targeted countries, like China. In retaliation, the Chinese government announced its own plans to institute tariffs on a wide array of different U.S. goods that have typically been imported by the Asian nation. With tension rising on both sides, analysts have been quick to speculate that a trade war has suddenly become a very real possibility. Perhaps predictably, the markets teetered based on those predictions.
With the potential for a trade war between the U.S. and China seemingly on the rise, many investors are likely wondering what moves they can take to help insure that their own assets remain safe through the turbulence. Given that exchange-traded funds (ETFs) have become increasingly popular as investment vehicles in recent years, it seems likely that many investors will look to this area for support. But can ETFs really hep during a trade war? (See also: Exchange-Traded Funds: ETF Investment Strategies.)
No ETFs Focus on Trade Wars
According to a recent report by Market Watch, out of roughly 5,500 ETFs available to investors, not a single one is expressly made for the purposes of navigating a potential trade war. However, that's not to say that the idea hasn't been floating around. Indeed, Exponential ETFs is a firm that weighed the idea of a trade-war ETF a year ago, according to CEO Phil Bak, who explained that his firm "did a pretty good amount of research and analysis on this theme, looking into how we could capture it in an index with various fundamental and quantitative screens." Bak continued by explaining that his company spoke with potential partners about how to bring the ETF to market and even went so far as to draft a prospectus for the project.
The fund, which would have been traded under the symbol WARS, was designed based on the aftermath of Donald Trump's election to the presidency in late 2016 and based on Trump campaign talking points signaling that the future of American trade might be headed toward protectionist policies. Trump was famously critical of the North American Free Trade Agreement (NAFTA) as well as the Trans-Pacific Partnership (TPP). As time went on, of course, the market reacted positively to Trump's victory, repeatedly posting new record highs. Nonetheless, because Bak and his team were not able to identify a market for their seemingly contrarian idea, they ended up halting the WARS project. (For more, see: Stocks That Could Be Hit by a Trade War With China.)
Potential for Benefit From Other ETFs
Trade has become a major concern for analysts and investors in the past several weeks following the announcement of the steel and aluminum tariffs. Bak announced that his firm was still considering a trade-related ETF, explaining that "anything we put out, it's because we think the idea represents a real long-term investment, with a fundamental thesis that won't just work today, but also down the road."
For the time being, investors may have to look for an ETF opportunity that is not specifically designed for a trade war. Exponential has a number of other funds, including the American Customer Satisfaction Core Alpha ETF (ACSI). ACSI is down marginally over the year but it is still outpacing the S&P 500 for the same period.
Furthermore, while there is not yet a trade ETF, there are funds that focus on precise political scenarios. EventShares launched a U.S. Tax Reform Fund (TAXR) with the intention of holding companies that are likely to benefit from the tax code overhaul made famous over the past year. The company also offers a Republican Policies Fund (GOP), which is reportedly becoming more defensive as a result of the recent trade announcements. (For additional reading, check out: An ETF for the Politically Inclined.)