Eric Dutram: Unless you haven’t been paying attention at all over the last few months, you should be well-aware of the tumultuous situation taking place in Greece right now. Thanks to a huge debt load and few good choices, Greece appears 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.