Can ETFs Help You Benefit From a Trade War?

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Can ETFs Help You Benefit From a Trade War?

President Trump has announced intentions to impose a slew of tariffs in recent weeks. These programs include both broad categories of items, such as steel and aluminum, as well as goods from individual nations, such as China. In return, the Chinese government announced its own intentions to impose taxes on a broad range of diverse US items that the Asian country has traditionally imported. With tensions on both sides mounting, many have speculated that a trade war has suddenly become a very serious prospect. Markets teetered on such projections, perhaps unsurprisingly.

With the possibility of a trade war between the United States and China seeming to be on the increase, many investors are probably asking what steps they can take to help ensure that their personal investments stay secure throughout the upheaval. Given the rising popularity of exchange-traded funds (ETFs) as investment vehicles in recent years, it seems probable that many investors will go to this sector for help. But, in the event of a trade war, can ETFs truly help? (For further information, see Exchange-Traded Funds: ETF Investment Strategies.)

No ETFs Focus on Trade Wars

According to a recent Market Watch research, none of the nearly 5,500 ETFs available to investors are specifically designed to navigate a possible trade war. That’s not to say the concept hasn’t been floated before. According to CEO Phil Bak, Exponential ETFs considered creating a trade-war ETF a year ago. His business “did a fairly significant amount of research and analysis on this issue, looking at how we might capture it in an index using different fundamental and quantitative screens.” Bak went on to say that his organization discussed how to bring the ETF to market with possible partners and even went so far as to prepare a prospectus for the project.

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The fund, which would have traded under the ticker WARS, was created in the wake of Donald Trump’s election to the president in late 2016, and was based on Trump campaign talking points indicating that the future of American trade might be heading toward protectionist measures. Trump has been vocal in his opposition to the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP) (TPP).Of course, the market responded favorably to Trump’s triumph over time, constantly setting new highs. Nonetheless, since Bak and his team were unable to locate a market for their apparently counterintuitive notion, the WARS project was put on hold. (For further information, see Stocks Threatened by a Trade War With China.)

Potential for Benefit From Other ETFs

Following the imposition of steel and aluminum tariffs, trade has been a key issue for experts and investors in recent weeks. Bak said that his business is still exploring a trade-related ETF, noting that “everything we put out is because we believe the notion represents a legitimate long-term investment, with a core premise that will work not only now, but also in the future.”

For the time being, investors may need to seek for an ETF that is not expressly built for a trade war. Other funds offered by Exponential include the American Customer Satisfaction Core Alpha ETF (ACSI).ACSI is down slightly year on year, but it is still outperforming the S&P 500 during the same time period.

Furthermore, although no trade ETF exists yet, there are funds that specialize on certain political situations. EventShares has created a U.S. Tax Reform Fund (TAXR) with the goal of investing in firms that are anticipated to gain from the recent tax code rewrite. The firm also provides a Republican Policies Fund (GOP), which is apparently growing more defensive in light of recent trade statements. (For further information, see: An ETF for the Politically Inclined.)

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