With the ASX now officially entering bear market territory, investors have been scrambling into different investment vehicles in order to protect their wealth.
One such vehicle which is not proving resilient at the moment is the Vanguard Australian Shares Index ETF [ASX:VAS]. At time of writing, the VAS share price was down 5.06% or $3.59 to trade at $67.39.
VAS is an Exchange Traded Fund (ETF), which is focused within the ASX 300 and is invested in all the ASX’s large blue chips stocks.
The purpose of this type of fund is to provide investment results that correspond to the price and yield performance of the underlying index.
However, when the market crashes so does the ETF. So, the VAS share price has followed the market’s recent downward trend.
Source: TradingView
VAS (blue) and ASX300 (orange) over the past 6 months
While the advantage of owning an ETF is that it provides a cheap option to invest in the whole market.
With the crash of markets around the world, ETFs such as VAS have mimicked those losses.
Is there money to be made in buying ETFs?
In a bold move to support the economy during the coronavirus pandemic, the US Federal Reserve has slashed interest rates to near zero.
Both here in Australia and abroad, governments have rushed to put together stimulus packages in order to inject cash back into the markets and kick-start the economy again.
With the lowering of the cash rate to near zero, it is effectively stating that the Federal Reserve stimulus packages will have little effect on the overall economy.
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Meaning, we could still see big losses on the market ahead. ETFs, which correspond to market indexes like the ASX300, are likely to follow market losses.
These types of ETFs will become cheaper as the markets fall, so they could be worth keeping an eye on in order to snag Australia’s great growth shares. Be mindful though, it is unclear just how long we’ll see this bear market environment.
That’s not to say ETFs aren’t worth buying. There are several options that have provided attractive returns during the economic downturn.
Source: TradingView
BEAR (blue) and USD ETF (green) versus ASX300 (orange) over the past six months
The weakening Australian dollar against the US Greenback means ETFs like Betashares US Dollar ETF [ASX:USD] has been performing solidly. USD corresponds to the price and yield performance of change in price of the US dollar relative to the Australian dollar.
The fund has skyrocketed recently and is up a further 2.27% today.
One more ETF for turbulent times
Another strong performer is Betashares Australian Equities Bear Hedge Fund [ASX:BEAR]. This fund specifically provides investors to profit from, or protect against, a decline of the Australian share market.
BEAR is up a massive 11.00% at time of writing, as Australian markets continue to tumble.
ETFs can be a great and easy way to invest. However, like we’ve just seen, timing is everything.
There are other wealth protection methods available to investors that can even turn a profit in time of economic downturn.
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Regards,
Lachlann Tierney,
For The Daily Reckoning Australia
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