The risk-on that started 2020 took a 180-degree turn following the coronavirus outbreak as of late that has been roiling the markets with volatility. Now, investors are dialing up the purchases on safe haven assets, such as bonds, precious metals, and defensive plays inequities—will this trend persist with government-mandated orders to contain the virus?
The U.S. is already taking measures to stave off any more infections domestically with proposed travel restrictions in the works.
Per a CNBC report, the “White House is considering imposing travel restrictions on China amid an escalating death toll from the new coronavirus, two senior administration officials said Tuesday. The restrictions could affect flights into and out of China, as well as airports across the United States, the officials said. They declined to be named because no final decision has been made.”
Furthermore, organizations like the Center for Disease Control (CDC) are advising U.S. travelers to avoid the country of China completely.
The report also noted that “previously, the health agency had advised against nonessential travel to Wuhan, the city in China where the disease was first diagnosed and the site of the majority of known cases. The Department of Health and Human Services announced during a news conference later in the day that it would expand screening for the virus to 20 U.S. airports, from five. Asked about potential travel restrictions, HHS Director Alex Azar said ‘it’s important to not take anything off the table.’”
Relative ETF Options to Play Defense
Further measures to contain the virus could boost the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC). RWDC seeks investment results that track the MSCI USA Defensive Sectors – USA Cyclical Sectors 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150% long exposure to the MSCI USA Defensive Sectors Index (the “Long Component”) and 50% short exposure to the MSCI USA Cyclical Sectors Index (the “Short Component”).
Conversely, for those investors looking to continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well but from their outperformance compared to defensive sectors.
These relative value ETFs present investors with the ability to buy into the notion that defensive sectors will outperform cyclical sectors and vice versa. Investors can choose which side of bullishness they wish to err on and trade their hunch.
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