As a hedge against the market shocks, traders have also turned to gold ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) – GLD has been the most popular ETF plays, attracting over $10 billion in net inflows year-to-date. Gold is seen as a safer store of wealth during times of turmoil.
Currency traders have also turned to hard currencies and related ETFs to hedge the market fears. For example, safe-haven currency plays include the CurrencyShares Euro Currency Trust (NYSEArca: FXE), CurrencyShares Japanese Yen Trust (NYSEArca: FXY) and CurrencyShares Swiss Franc Trust (NYSEArca: FXF).
The hard currencies are typically used to fund trades of more risky assets due to their low interest rates, along with their stable government and financial systems.. However, when investors reverse risky bets, they buy back the hard currencies, which we are seeing now.
Lastly, within the equities market, investors can also look to utilities as a traditional defensive play, including ETF options like the Utilities Select Sector SPDR (NYSEArca: XLU), Vanguard Utilities ETF (NYSEArca: VPU) and iShares U.S. Utilities ETF (NYSEArca: IDU) that provide broad exposure to the utilities sector.
However, potential investors should be aware that the fortunes of the utilities sector seem to be tied to the Federal Reserve’s interest rate outlook. Once the Fed eventually hikes interest rates, the higher rates will make fixed-income instruments more attractive on a relative basis, and bond-like equities, like utilities, less enticing. Consequently, utilities may remain flat or underperform other segments of the equities market once rates start ticking higher.