Here are two top exchange-traded funds (ETFs) I think are worth a close look at this month.
Goldman Sachs Physical Gold ETF
Grabbing exposure to gold is a good idea to consider as uncertainty over US economic and foreign policy continues. The Goldman Sachs Physical Gold ETF (NYSEMKT:AAAU) is one attractive way to play this theme, in my opinion.
According to retailer BullionVault, gold prices rose 22% on a US dollar basis in the first 100 days of Donald Trump’s second Presidential term. This was the greatest gain since the early days of Richard Nixon’s second term in 1973, and if the current President’s first stint in the White House is any guide, expect more fireworks that could continue propelling gold values higher.
With investment vehicles like Goldman Sachs Physical Gold, investors don’t have the hassle or the expense of buying and storing gold. And unlike purchasing gold stocks, they aren’t exposed to the unpredictable mining industry. Here, exploration, mine development or production issues can cause share prices to drop like a stone.
This fund simply tracks the spot bullion price up and down. And with a management charge of 0.18%, it’s a pretty cost-effective way to do it. Be mindful though, there’s no guarantee gold will keep appreciating, and a reversal (due to profit-taking or rising risk appetite, for instance) would similarly drag ETFs like this lower.
Goldman Sachs’ product has risen at an annualised rate of 14% over the last five years. Given current macroeconomic and geopolitical uncertainty, and the US dollar steadily falling, I think it’s a fund to consider.
WisdomTree Europe Defence ETF
The WisdomTree Europe Defence ETF’s (LSE:WDEP) another fund to think about that could potentially thrive in these tough times. The stable nature of arms spending across the economic cycle makes the sector a natural safe haven.
However, this isn’t the chief reason the fund’s worth considering today. I think it could surge as European nations boost defence spending in response to shifting global foreign policy. NATO chief Mark Rutte’s demand that bloc members spend “considerably more than 3%” of their GDPs on armaments underlines the direction of travel.
This WisdomTree fund — which was launched in March — invests in a range of continental defence businesses like aerospace contractors, armour manufacturers, training providers and cybersecurity specialists. In total, it has holdings in 24 businesses, which minimises the effect that issues affecting any single company may have on final returns.
It also means the fund holds rock-solid industry heavyweights such as BAE Systems, Thales and Rheinmetall alongside smaller operators with greater growth potential.
A word of warning however. Soaring share prices across defence means the trust’s estimated price-to-earnings (P/E) ratio is a high 27.5 times. This could leave it vulnerable to a sharp reversal if sector news flow worsens.
But on balance, I believe the potential rewards of this ETF may outweigh the risks.
