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Why These 3 ETFs Outperformed in Monday's Mini-Crash

By Dan Caplinger – Feb 26, 2020 at 7:30AM

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Can you count on these funds to get the job done in the long run?

The stock market took a big hit on Monday, as the Dow Jones Industrials (^DJI -1.71%) suffered losses of more than 1,000 points in a single day. Fears about the outbreak of COVID-19 around the world spurred the big declines, leaving investors wondering what they need to do to protect their portfolios.

On a day in which the S&P 500 dropped 3.3%, finding winning investments was difficult. However, there were some notable winners in the exchange traded fund space that are worthy of attention, and some other specially designed investments helped limit losses for their shareholders. Here, we'll take a closer look at how these ETFs got the job done -- and whether they'll keep doing so in the future.

ETF

Monday's Return

iShares 20+ Year Treasury (TLT -1.29%)

1.5%

SPDR Gold (GLD 0.01%)

0.9%

iShares Edge MSCI Minimum Volatility USA (USMV -1.15%)

(2%)

Data source: Yahoo! Finance.

Selling stocks, buying bonds

The stock and bond markets have often served as counterbalances to each other, with one market rising as the other falls. One thing many investors find confusing about bonds is that when their yields are dropping, their prices are rising -- and so on a day when bond yields plunged along with stocks, the prices of those bonds were soaring. The iShares 20+ Year Treasury ETF was particularly well rewarded because the long-term bonds it holds tend to see more dramatic price movements than bonds with shorter maturities.

Historically, allocating a substantial portion of your portfolio to bonds was helpful, because it took advantage of the complementary performance of bonds and stocks to smooth out overall returns. Yet with bond yields as low as they are right now, the risks involved in holding them has risen dramatically. Despite the big gains in the iShares long-term Treasury ETF, the potential for substantial losses as well makes the fund a difficult one to rely on right now unless you're absolutely certain of the future direction of interest rates.

Yellow mosaics with white mosaics spelling ETF in the foreground.

Image source: Getty Images.

Looking for physical wealth

During times of crisis, gold has often served as a safe-haven investment of last resort. When investors question the ability of governments to control their own financial situation, gold typically sees a boost, and prices are approaching record levels that we haven't seen in nearly a decade.

The SPDR Gold ETF owns physical gold bullion, with each share corresponding to just under a tenth of an ounce of the yellow metal. Yet for long-term investors, the fact that gold doesn't produce any income puts it at a significant disadvantage as an investment to stocks of operating companies that earn profits and pay dividends. Big price moves in gold like the ones we've seen lately tend to be tied more to speculation than investment.

Trying to stay calm

The iShares minimum volatility fund doesn't try to avoid losses in the stock market, but it does believe in choosing stocks that are less susceptible to those losses. By focusing on stocks that tend to make less dramatic movements in either direction, the minimum volatility ETF hopes to lose less than the overall market.

That game plan worked out well Monday, losing 2% versus 3.3% for the S&P 500. Obviously, that doesn't mean that shareholders won't lose money with the ETF, but the losses should be easier to handle -- and the gains should help them claw the losses back in time.

Stick with your strategy

A single day's moves shouldn't change your investing strategy, and different asset allocations will  leave investors exposed to different levels of risk. There's a place for these three ETFs for many investors, but that doesn't necessarily mean that they'll do as well on a relative basis as they did during Monday's mini-crash.

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Stocks Mentioned

SPDR Gold Trust Stock Quote
SPDR Gold Trust
GLD
$154.67 (0.01%) $0.01
iShares Trust - iShares 20+ Year Treasury Bond ETF Stock Quote
iShares Trust - iShares 20+ Year Treasury Bond ETF
TLT
$102.45 (-1.29%) $-1.34
iShares Trust - iShares Edge MSCI Min Vol USA ETF Stock Quote
iShares Trust - iShares Edge MSCI Min Vol USA ETF
USMV
$66.10 (-1.15%) $0.77
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$28,725.51 (-1.71%) $-500.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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