Russia-Ukraine Tensions Revive Interest in Safe ETFs

The resurgence in tensions between Russia and Ukraine dented the risk appetite globally. This has prompted investors to reassess their portfolios, leading to higher demand for safe and defensive assets.

As a result, we have highlighted five such zones and their popular ETFs, wherein investors could put aside their money amid the turbulence. The ETFs are iShares Edge MSCI USA Quality Factor ETF QUAL, Vanguard Value ETF VTV, SPDR Gold Trust ETF GLD, Vanguard Dividend Appreciation ETF VIG and iShares 20+ Year Treasury Bond ETF TLT.

On the 1,000th day of the conflict, Ukraine employed U.S.-provided long-range Army Tactical Missile Systems (ATACMS) to strike a Russian ammunition depot in the Bryansk region. This marked the first use of such missiles by Ukraine, following the authorization of former President Joe Biden. The attack resulted in significant damages and secondary explosions at the targeted facility.

In reaction to Ukraine's use of ATACMS, president Vladimir Putin revised Russia's nuclear doctrine. The updated policy now permits a nuclear response to conventional attacks on Russia by any nation supported by nuclear power, effectively lowering the threshold for nuclear weapon use. This change has raised concerns about conflict escalation.    

Let us delve deeper into the ETFs:

iShares Edge MSCI USA Quality Factor ETF (QUAL)

Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products, thus, reduce volatility when compared with plain vanilla funds and hold up rather well during market swings (read: Why Yields Spiked Despite Tame Inflation? Buy Quality ETFs). 

With an AUM of $51 billion, iShares Edge MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index and holds 124 stocks in its basket. The ETF charges 15 bps in annual fees and trades in an average daily volume of 865,000 shares. It has a Zacks ETF Rank # 3 (Hold).

Vanguard Value ETF (VTV)

Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow. These have the potential to deliver higher returns and exhibit lower volatility than their growth and blend counterparts.

Vanguard Value ETF targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. It holds 336 stocks in its basket with an AUM of $131.5 billion and charges 4 bps in annual fees. The ETF trades in a volume of 2 million shares per day on average and flaunts a Zacks ETF Rank #1 (Strong Buy).

SPDR Gold Trust ETF (GLD)

Concerns over an escalation in geopolitical tension raise the demand for gold, as the precious metal is viewed as a haven or a store of value in times of economic or political turmoil. As such, the ultra-popular product tracking this bullion, like GLD, could be an interesting pick. SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with an AUM of $71.8 billion and trades in heavy volume of about 7 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (read: Fed Cuts Interest Rate Again: 5 ETFs Likely to Gain).

Vanguard Dividend Appreciation ETF (VIG)

Dividend-paying securities are major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. 

While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth, like VIG, seem to be good picks. The ETF has an AUM of $87.5 billion and trades in a volume of 681,000 shares a day on average. It charges 6 bps in annual fees and sports a Zacks ETF Rank #1 (read: Will Trump's Tariffs Fuel Inflation? ETFs in Focus).

iShares 20+ Year Treasury Bond ETF (TLT)

The products tracking the long end of the yield curve often prove to be a safe haven. iShares 20+ Year Treasury Bond ETF tracks the ICE U.S. Treasury 20+ Year Bond Index, holding 45 securities in its basket. The fund has an average maturity of 25.48 years and an effective duration of 16.16 years. iShares 20+ Year Treasury Bond ETF charges 15 bps in annual fees. 

TLT is one of the most popular and liquid ETFs in the bond space, with an AUM of $58.2 billion and an average daily volume of 40 million shares.

Bottom Line

These products could be worthwhile for low-risk-tolerant investors and have the potential to outperform the broad market, especially if escalating geopolitical tensions continue to dampen sentiments.

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