The possibility that Israel launches a strike on Iranian nuclear facilities has been discussed at great length in the media. At this point, an attack seems unlikely but very possible. Currently, Intrade prediction markets are pricing in a roughly 30% chance that Israel attacks Iran by the end of 2012. An Israeli attack would likely send the region into chaos because Iran will strike back. In this article, I will look at ETFs investors can own to protect their wealth from the panic that would hit financial markets if Israel attacks Iran.
Safe Heaven Currency Plays
- PowerShares DB US Dollar Bullish Fund (UUP)
- Currency Shares Japanese Yen (FXY)
- Currency Shares Swiss Franc (FXF)
The U.S. dollar, Japanese yen, and Swiss franc would see major moves higher in the event of an attack because they are traditionally known as the "safe haven" currencies.
- SPDR Gold Trust (GLD)
- iShares Gold Trust (IAU)
- ETFS Physical Gold Trust (SGOL)
- ProShares Ultra Gold (UGL)
- Velocity Shares 3x Long Gold (UGLD)
Gold is the ultimate safe heaven. For this reason, gold will rally on the uncertainty that an attack would cause.
- iShares 20+ Year Treasury Bond Fund (TLT)
- Direxion Daily 20+ Year 3x Treasury Bull (TMF)
- ProShares Ultra 7-10 Year Treasury (UST)
- ProShares Ultra 20+ Year Treasury (UBT)
- iShares 7-10 Year Treasury (IEF)
- PowerShares DB German Bund Futures Exchange Traded Notes (BUNL)
The U.S. Treasury market will rally in the event of an Israeli attack because it is the world's safe haven. No other market in the world is as liquid as U.S. Treasuries.
- United States Oil Fund LP (USO)
- ProShares Ultra Crude Oil (UCO)
- United States Brent Oil Fund LP (BNO)
- Powershares DB Oil Fund (DBO)
- United States Gasoline Fund LP (UGA)
- United State Heating Oil Fund LP (UHN)
In the event of an attack, Iran will likely shut off oil exports. This event alone would cause a massive spike in oil. Oil will also rally because of the tensions caused in the region as a whole outside of Iran. These ETFs would all rally.
- iPath S&P 500 VIX Short Term Futures ETN (VXX)
- Velocity Shares Daily 2x VIX ETN (TVIX)
- Velocity Shares Long VIX Short Term ETN (VIIX)
- iPath S&P 500 Mid-Term Futures ETN (VXZ)
- ProShares VIX Mid-Term Futures (VIXM)
- ProShares VIX Short Term Futures (VIXY)
- ProShares VIX Ultra Short Term Futures (UVXY)
Volatility will spike in the event of an Israeli attack. These ETFs will rally on a spike in volatility. However, it is important to remember that these products do not track well over the long run.
- ProShares Ultra Short S&P 500 (SPXU)
- ProShares Short S&P 500 (SH)
- ProShares Short Russell 2000 (RWM)
- ProShares Short Emerging Markets (EUM)
- Direxion Daily Large Cap Bear 3x (BGZ)
- Direxion Daily Small Cap Bear 3x (TZA)
- Direxion Daily Emerging Markets Bear 3x (EDZ)
Equity markets around the world would sell off if Israel attacks Iran. Inverse ETFs would rally. It is important to note that over the long term these ETFs do not perform well. These ETFs should only be owned as a short-term hedge, not a long-term hedge.
There are many ETFs to own if you want to protect your investments from the Israel/ Iran conflict.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.