Save Haven and Volatility ETFs To Watch Amid Turmoil [ProShares Trust II, iShares Barclays 20+ Yr Treas.Bond (ETF)]

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October 15, 2014 4:51pm NYSE:FXY NYSE:GLD

technical bounceThe global stock market had a shaky start to Q4. Bad news was rampant in almost all key nations pushing the S&P 500 to end the trading below its 200-day moving average on October 13. The Nasdaq Composite also shed about 8.6% from

its September highs, per CNBC.

The end of QE stimulus in the U.S. this month, the Eurozone’s possibility of entering into a triple-dip recession, the sluggish Japanese economy and outbreak of Ebola virus spread jitters among investors.

The nervousness was so acute that investors completely ignored the much-needed boost received by the Chinese economy. Notably, China, which has been staging downbeat performances since the start of the year, came up with better-than-expected trade number for September.

In any case, the past few days have been choppy for the U.S. market. Investors were dumping high growth and high beta stocks thanks to valuation concerns, profit-taking activity, fears of a cease in cheap dollar inflows and some sluggish global economic indicators. But the latest rout was instigated by the massive sell-off in technology stocks and lackluster German trade data.

The semiconductor space which has been investors’ darling in the overall technology sector this year, had a blood bath on October 10 as Microchip Technology Inc. (MCHP) came up with a downbeat second-quarter fiscal 2015 preliminary net sales report on October 9 and also raised some concerns about the future of the sector.

Also in Europe, the biggest decline in German industrial output since 2009 for the month of August gave cues that the Euro zone’s largest and most stable economy is deteriorating. Not only this, the Eurozone’s business grew at the slowest rate this year in September.

Market Impact 

Investors appeared to take these data at face value and rushed toward fear-induced selling. The sudden elevation of the risk quotient in the market brightened the appeal for safe haven assets. Volatility ETFs which track the implied volatility of the market also surged thanks to the massacre in the stock market and concerns about a further downturn (read: 3 Attractive Value ETFs to Buy After Market Selloff).

This specifically caused the uptrend in a few segments of the financial world that had been seeing dire trending as of late, but now might be promising. Below, we highlight a few of the biggest gainers from the latest sell-off in the global stock market. Also, these ETFs may continue to shine should tensions persist in the global economy in the near term.


Gold is often viewed as a hedge against market risk. The precious metal had been through a brutal stretch in Q3 thanks to the rising greenback and reduced demand from the major consuming nations like China and India. The metal has seen some strength lately thanks to this market turmoil.

The ETF tracking gold bullion SPDR Gold Shares (NYSEARCA:GLD) has added more than 1.8% in the last five days (as of October 13). Apart from the rising tension in the market, the Fed’s latest comment of keeping the interest rate low for a ‘considerable’ period helped GLD to get back some of its lost strength.


The Japanese currency yen is another asset class which is considered as a safe haven. Despite the bank of Japan’s relentless effort to keep the currency weaker, yen has gained strength lately. Japanese yen touched one-month high with respect to the greenback and 11-month high relative to the euro on October 13. As a result, the ETF tracking the yen – CurrencyShares Japanese Yen ETF (NYSEARCA:FXY) – added about 1% during the last five days (as of October 13).

Long-Term U.S. Treasury 

U.S. Treasuries have been the name of the game this year, especially the long-term ones as speculation about a rise in short-term interest rates kept the short-term space muted. Notably, U.S. Treasuries are also perceived as risk-free asset class which is why iShares Barclays 20 Year Treasury Bond Fund (NYSEARCA:TLT) andiShares Barclays 7-10 Year Treasury Bond Fund (NYSEARCA:IEF) added about 2.1% and 1.4% during the last five days ending October 13, 2014 (read: Short-Term Bond Yields Rising: Where to Go Now for Fixed Income ETFs?).


Volatility investments are not meant for long-term traders. Prices for these types of products tend to lose value over time thanks to a contangoed market, and a steep roll cost. However, lately, thanks to broad market issues, volatility products delivered decent returns.

The ETF tracking the performance of the S&P 500 VIX Short-Term Futures Index – ProShares VIX Short-Term Futures (NYSEARCA:VIXY) – has returned about 27% in last five days with as much as 10.2% gains realized on October 13 itself.

Bottom Line 

Though we do not expect this bearish move to continue especially in the U.S. which has a strong trend underneath, the upheaval in the stock market may persist for a week or so courtesy of the gloomy global backdrop. However, as the earnings season unfolds, this fluffy market will take a solid shape and decide on the fate of several asset classes and sectors.

This article is brought to you courtesy of Zacks.

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