Personal Investor: Trade war could hit your portfolio this earnings season
You might want to pay special attention to your investments when third quarter earnings season kicks off later this month.
Earnings for companies listed on the S&P 500 are expected to rise a whopping 20 per cent compared to last year, but the growing global trade war could bring some shocks, as the world’s biggest companies assess the impact on their bottom lines.
For globally diversified portfolios that means different companies will be affected in different ways. According to financial data firm Factset, U.S.-based companies that earn more revenue overseas earnings are expected to perform better. Companies that generate more than half of their sales outside the U.S. are expected to grow by 24 per cent, while those that generate most of their revenue domestically will grow by 17 per cent, Factset said.
The second quarter is expected to reveal if, or how, tariffs and counter-tariffs will impact that balance. Many companies popular in Canadian portfolios could also reveal how the trade war will impact earnings for the rest of the year.
Yet the whole trade war nonsense could be resolved within a week. No one knows how it will end, but there is a way for investors to hedge the uncertainty through exchange traded funds (ETFs) that favour U.S.-listed companies with more global exposure.
Many ETF providers offers funds that track U.S.-listed funds with at least 50 per cent of their revenue generated outside the U.S. The iShares Global Consumer Staples ETF (KXI), for example, holds international companies like Procter & Gamble, Coca-Cola and Walmart.
Contrast that with the performance of a U.S.-focused consumer staples ETF, such as the Vanguard Consumer Staples ETF (VDC), and you will find two very different U.S. consumer staples ETFs.