to be perilously close to an outright default, and with payments due at the end of the month, it appears as though Greece may be out of options.
If a default happens, it looks to be catastrophic for the Greek markets, at least in the near term. While it might help to promote long term growth (eventually), the short term pain could be quite severe and especially if we use the Global X FTSE Greece 20 ETF (NYSEARCA:GREK) as a proxy.
This fund was down over 15% in Monday trading on extremely heavy volume while it has been having a horrendous 2015 as well. In fact, since the start of the year the Greek ETF has lost over one-fourth of its value while the S&P 500 has remained more or less flat in the same time frame.
What’s an Investor to Do?
Worries over a Greek default are not limited to Athens by any means though. A number of European banks stand to lose a great deal in a default scenario, while a variety of other European markets could be impacted by Greece leaving the euro.
And with Europe being a major market for U.S. corporations, it shouldn’t be surprising to note that many American stocks are being hit by this turmoil too. Save for a few rate sensitive beneficiaries, pretty much every U.S. stock has been rocked by European concerns in the past couple of days.
However, there are a few places where you can stash your cash in the ETF world in this difficult time. Below, we highlight four exchange-traded funds that look to offer up stability—or even profit—as the Greek situation continues to unfold:
SPDR Gold Trust (NYSEARCA:GLD)
In difficult market environments, gold is considered a great store of value. And when you aren’t sure what your currency is going to be at the end of the year, gold becomes even more important and especially so given the long list of bank closures and currency concerns hitting the Greek market right now.
These worries could impact other European markets too, increasing gold demand across the continent. We have already started to see this trend take place as GLD is pretty much flat over the last five sessions though GREK has lost 16%, the S&P 500 has declined 2.4%, and VGK (broad Europe) has fallen over 5%.
For these reasons a look to the most popular gold ETF of GLD could be an interesting way to hedge exposure in the near term. And if you are looking for a slightly longer term investment,IAU is also a viable option as it charges a bit less in fees though it doesn’t have as tight of a bid ask spread (due to having a lower per share price).
iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT)
Concerns over a rate hike have plagued bond ETF investments as of late, but the Greek situation could be just the kick to get things moving back in the right direction. After all, given the uncertainty in Europe, the demand for safe American bonds will increase, helping to push yields lower in the process.
We have already seen part of this take place with TLT as lower rates help to boost the prices in this fund, as it added about 2% in Monday trading. And if Greece slides closer to default look for the gains to continue here as more investors pile into American debt.
It should be noted that there are a variety of bond ETFs trading in the market right now but TLT and other long-dated securities look to be the biggest winners. That is because they are the most sensitive to changes in rates so a big drop stands to make these securities benefit more than most in the fixed income world.
iPath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX)
The VIX is often known as the ‘fear index’ as it can surge when investors are skittish about the market’s current direction. Obviously this is the case right now and we have been seeing prices for the ETN tracking this benchmark, VXX, surge as a result. VXX was up double digits in Monday trading and I’d expect this trend to continue as the Greek situation becomes increasingly dire.
Just remember that this is a terrible long term investment due to the futures curve so be careful when trading volatility. VXX has lost over 35% of its value so far in 2015 and most of this is due to a difficult futures curve which makes long term investing very hard.
With that being said, an outright default in Greece will likely make this ETN a big winner and a very liquid choice for traders seeking to make a bet on fear levels in the market. Volume levels here average over 38 million shares a day and if anything I think you could argue we were long overdue for a bout of volatility in markets.
ProShares UltraShort FTSE Europe ETF (NYSEARCA:EPV)
If you are looking to outright bet against Europe, then an inverse ETF could be the way to go in your portfolio. A fund that offers to pay the opposite of the return of a European benchmark seems built to profit in this uncertain time and that is exactly what investors have with EPV.
This ETF tracks the -2x return of the FTSE Developed Europe Index which is a broad based benchmark offering up exposure to a number of European companies across the continent. The euro currency accounts for about half of the exposure in the ETF while financials make up the biggest single allocation at 22% of the total.
The fund is up about 5% today and it could continue to rise if the Greek impact ripples across the continent. Just remember, this is a daily resetting ETF so it isn’t really intended for long-term investors (though the -200% daily factor should have been a clue to that as well).
This article is brought to you courtesy of Eric Dutram.