Aggressive investors could use the geared version, Australian Equities Strong Bear Hedge Fund, or the US Equities Strong Bear Hedge Fund – Currency Hedged. As with any geared product, leverage magnifies gains and losses.

Care is needed with inverse ETFs. Some overseas ones replicate their index using derivatives, adding credit risk if a counterparty to the contract cannot meet its obligations. Inverse ETFs can have higher tracking-error risk if their performance diverges from their underlying index because of compounding. They are best used as short-term trading tools.

Rotate to safe-haven assets

Investors who believe global equity markets are primed for further falls can use ETFs to move to cash, fixed interest, gold or other safe-haven assets.

The iShares Core Cash ETF and BetaShares High Interest Cash ETF are useful for investors who want cash exposure without locking their money in bank term deposits and are willing to trade a slightly lower return from cash ETFs for higher liquidity.

Interest in using ETFs in cash-equitisation strategies is also growing. This involves parking portfolio cash in the sharemarket after heavy falls, such as when it fell sharply in March, while you decide where to invest it. The goal is to earn a higher yield through a broad-based Australian share ETF compared to a bank term deposit that offer a skinny return after interest-rate cuts, albeit with higher risk.

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In bonds, there is a growing range of fixed-income ETFs on the Australian Securities Exchange. Conservative investors should favour those replicating indices over sovereign bonds, investment-grade corporate debt or a combination. Favouring ETFs over floating- rather than fixed-rate bonds is a consideration with the official cash rate in Australia near zero.

The ETF Securities Physical Gold ETF provides exposure to gold bullion, which is trading near highs. The ETF is unhedged for currency movements, meaning investors need a view on the direction of the Australian dollar against the US dollar. BetaShares offers a currency-hedged Gold Bullion ETF for those seeking to eliminate currency risk.

Buy market dips

When markets started to recover in late March, investors piled into ETFs over the largest companies on Australian and US sharemarkets, says BetaShares’ Vynokur. “There has been significant interest in getting broad, quality company exposure via ETFs and buying the dips.”

Vynokur says volumes in the BetaShares Australia 200 ETF jumped in March as investors re-entered the market. More investors used the firm’s Geared Australian Equity Fund to magnify potential gains during the sharemarket’s rally in late March and early April.

Other “buy-the-dip” ETF options for large-cap Australian equities include State Street’s popular SPDR S&P/ASX 200 Fund, the iShares Core S&P/ASX 200 ETF and the Vanguard Australian Shares Index ETF. The go-to ETF for US equities exposure is iShares S&P 500 ETF.

Buy tech

Technology was the best-performing sector a year after the US sharemarket low during the 2003 SARS crisis and investors are betting it will be again, judging by volumes in tech ETFs.

ETF Securities Australia CEO Kris Walesby says interest in his firm’s new ETFS FANG+ ETF has been strong during COVID-19. “We have seen bargain hunters use the ETF for exposure to the world’s largest technology companies.” FANG+ provides exposure to 10 tech companies (Tesla is the largest weighting at almost 17 per cent), but with that comes concentration risk.

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Investors seeking broader tech exposure could use the BetaShares NASDAQ 100 ETF, although the underlying index also includes consumer discretionary and healthcare companies.

Those wanting to invest in Australia’s largest tech stocks during the market sell-off could use the new BetaShares S&P/ASX Australian Technology ETF for exposure to Xero, Afterpay, REA Group, WiseTech Global and other key local tech stocks.

Buy beaten-up sectors

Dividend uncertainty has weighed heavily on bank stocks: the S&P/ASX Banks index slumped about 30 per cent on a total-return basis over one year. Contrarians who believe bank stocks have fallen too far could use the VanEck Vectors Australian Banks ETF for exposure to this market’s large and small bank stocks.

Australian real estate investment trusts (A-REITS) have also struggled amid fears over the ability of tenants to pay rent and longer-term demand for office, retail and industrial space. The S&P/ASX 200 A-REIT index has shed 25 per cent over one year.

Contrarians could use the VanEck Vectors Australian Property ETF for exposure to the largest A-REITs, the top-rated Vanguard Australian Property Securities ETF or the SPDR S&P/ASX 200 Listed Property Fund.

Australian investors seeking global property exposure could use the SPDR Dow Jones Global Real Estate Fund, which has 217 holdings and far less concentration risk than some Australian property ETFs that a handful of large A-REITs dominate.

Target global infrastructure

VanEck’s Arian Neiron says demand for the firm’s FTSE Global Infrastructure Hedged ETF has risen during COVID-19. The ETF provides exposure to 142 of the world’s largest infrastructure companies and a third of its exposure is in electricity utilities.

“In times of uncertainty, investors are focusing more on big infrastructure companies that have regulated income from electricity or gas, for example,” says Neiron. “Distributions from core infrastructure look more reliable for conservative, yield-focused investors than from banks or property right now.

The Vanguard Global Infrastructure Index ETF is another option. It provides low-cost exposure to the sector and focuses on lower-risk core infrastructure securities.

Boost dividend yield

ETF issuers report rising interest in smart-beta ETFs that use rules-based strategies to enhance yield rather than replicate a market-weighted index, which is no surprise as more companies defer, cancel or cut dividends due to COVID-19 uncertainty.

Examples are iShares S&P/ASX Dividend Opportunities ETF, Russell High Dividend Australian Shares ETF, Vanguard Australian Shares High Yield ETF and UBS IQ Morningstar Australian Dividend Yield ETF.

Care is needed with yield-focused ETFs as some are based on indices that include a higher-proportion of mid-cap and small-cap stocks to boost the ETF’s growth, and others are based on analysts’ stock recommendations. Beware historic yields from these ETFs as widespread corporate dividend cuts and cancellations this year could distort comparisons.

Smart-beta ETFs generally have higher fees and some have had patchy performance.

Manage currency exposure

As the Australian sharemarket nosedived, so did the Australian dollar against the greenback, hitting an 18-year low. iShares’ Christian Obrist says more investors moved to hedged international ETFs as the Australian dollar fell.

When our currency hit US55¢ in March, investors rotated to unhedged international ETFs to benefit from a potential recovery in the Australian dollar, says Obrist – a view that has so far paid off.

Investors can underestimate currency risk in unhedged international ETFs, particularly in times of high market volatility. Some ETF issuers offer hedged and unhedged versions of their main products to enable investors to eliminate currency risk or tactically manage currency exposures to boost returns.

Target country-specific opportunities

Contrarians could use ETFs to target countries most affected by COVID-19: the US, China, Italy, Spain and the UK, for example. Or ETFs over emerging markets if COVID-19 outbreaks escalate there and their sharemarket indices fall even further.

VanEck’s China New Economy ETF provides exposure to Chinese technology, healthcare, consumer staples and consumer discretionary companies.

The iShares MSCI Emerging Markets ETF and Vanguard FTSE Emerging Markets Shares ETF are other options for exposure to developing markets.

The BetaShares India Quality ETF and ETFS Reliance India Nifty ETF provide exposure to Indian equities – potentially an interesting opportunity given that country’s long-term growth prospects.

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