U.S.-China relations haven't been great in recent years, and the future is as uncertain as ever. The U.S. government is looking to reduce its reliance on China by helping to fund and encourage more domestic production.
Given the uncertainty ahead and the potential for trade-related problems, U.S. investors might want to consider minimizing their exposure to China. Two exchange-traded funds (ETFs) that can help achieve that are the iShares U.S. Aerospace & Defense ETF (ITA 0.40%) and the iShares U.S. Medical Devices ETF (IHI 0.47%).
1. iShares U.S. Aerospace & Defense ETF
One major industry within the economy that looks to be a safe place to expect growth in the future is the aerospace and defense industry. Travel demand is likely to rise along with population growth, thus helping companies involved with aerospace benefit from that. And spending on defense is always a priority for the government, even in the absence of geopolitical tensions.
This makes this ETF an ideal option for long-term investors who are concerned about U.S. relations with China or any other country.
The top two stocks in the fund are big names in aerospace and defense. Patriot missile maker Raytheon Technologies is the top holding in the ETF, accounting for over 20% of the fund's weight, followed by Boeing at 17%. There are 35 holdings in total in the fund, focusing on U.S.-based businesses that make both military and commercial aircraft, and defense equipment.
At 0.39%, the ETF's expense ratio is modest: It will cost you just $39 per $10,000. The fund has the potential to be a good defensive investment; over the past three years and amid rising global uncertainty, its total returns (which include dividends) are 54%, versus 46% for the S&P 500.
Buying and holding the fund can be a good option whether you're worried about China or other geopolitical tensions, or if you just want an easy way to diversify your portfolio.
2. iShares U.S. Medical Devices ETF
The iShares U.S. Medical Devices ETF is another fund that conservative investors should consider loading up on. It holds shares of U.S. companies that make and distribute medical devices.
While these companies might sell to China, many of them are large global organizations with a wide reach. And so if there are problems with China or another country, their broad geographic operations should help keep their overall risk down.
The top three holdings all have large global footprints: Thermo Fisher Scientific accounts for 15% of the fund's weight and is in 50 countries; Abbott Laboratories is the next largest stock at 14%, and its products are found in more than 160 countries; Medtronic accounts for less than 9% and it has a presence in more than 150 countries.
At 61 holdings, this is a more broadly invested fund than the iShares U.S. Aerospace and Defense ETF. iShares U.S. Medical Devices ETF has the same expense ratio of 0.39%, though. Companies involved with healthcare equipment account for 82% of the total fund, with life sciences companies making up the remainder.
The medical devices ETF's total returns over the past three years are a bit modest at 23%. But the appeal for investors is the long-term stability it offers. And when looking at the past decade, its total returns top 340%, vastly outperforming the S&P 500 (222%) and the aerospace and defense ETF (207%) during that stretch.
While the past doesn't predict the future, healthcare needs are likely on the rise as baby boomers age and seniors account for more of the population, so there could be plenty more growth for these businesses.
With this ETF, not only are you limiting your exposure to China and any other individual country due to how global some of these companies are, but you're also setting yourself up to take advantage for some attractive long-term opportunities.
