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5 ETF Zones Hitting Highs As Growth Worries Resurface
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COVID-19, which pushed the market into a tailspin in March 2020, has resurfaced with the new Delta variant. This highly contagious variant of coronavirus is spreading rapidly in states with the lowest vaccination rates such as Alabama, Arkansas, Louisiana, Nevada, Missouri and Mississippi.
Per the U.S. Centers for Disease Control and Prevention data, cases of COVID-19 are up 70% over the previous week and deaths are up 26%, with most of the surge occurring in counties with below-average vaccination rates. The seven-day-average number of daily cases is now more than 26,000, more than twice its June low of around 11,000 cases.
Many health experts quoted on CNBC that the country, which just celebrated the Fourth of July with some of its first large gatherings in more than a year, is headed toward a “dangerous” fall season when Delta is expected to cause another surge in coronavirus cases (read: Celebrate Fourth of July With These ETFs).
The resurgence would lead to another wave of lockdowns and the reintroduction of indoor mask mandates, distancing and occupancy limits in certain parts of the country in the coming months. This risk of deceleration in economic growth has dampened investors’ risk appetite. Additionally, consumer sentiment, as measured by the University of Michigan, dropped to the lowest since February in early June. However, continued vaccine rollouts, expanded stimulus, a healing job market and the return of earnings growth bode well for the stock market rally.
Against this backdrop, we highlighted a number of ETFs from various zones that are hitting new highs in the latest trading sessions and could be compelling choices given the current fundamentals.
The cost of living in the United States has surged the most in 13 years as economic recovery has gathered momentum, suggesting that inflation is heating up. Consumer prices increased 5.4% year over year in June, representing the biggest monthly gain since August 2008. Amid the inflationary backdrop, investing in TIPS ETFs, which offer shelter against rising inflation, would be prudent. It not only combats increasing prices but also protects income for the long term.
While many TIPS ETFs are trading at all-time highs, SCHP tracks the Bloomberg Barclays US Treasury Inflation-Linked Bond Index (Series-L), holding 50 securities in its basket. It has an effective duration of 7.40 years and an average maturity of 7.90 years. SCHP is among the cheapest option in the TIPS space, charging just 5 bps in annual fees. It has AUM to $18.3 billion and trades in a solid volume of 2.3 million shares a day.
Dividend Aristocrats - WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies (read: 5 Market-Beating Dividend ETFs of 1H2021).
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $6.1 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket, with each accounting for no more than 5.4% share. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Real Estate - iShares U.S. Real Estate ETF (IYR - Free Report)
Real estate stocks and ETFs often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields.
This ETF tracks the Dow Jones U.S. Real Estate Index. It holds a basket of 83 securities with each accounting for no more than 9% share. Specialized REITs dominate the portfolio at 38.8% followed by residential REITs (15.3%) and industrial REITs (10.4%). The fund has amassed $5.5 billion in its asset base while trading in heavy volume of 8 million shares a day on average. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Reasons Why REIT ETFs Are Surging).
Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
Low-volatility ETFs have the potential to outpace the broader market in an uncertain market environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to the defensive sectors that usually have a higher distribution yield than the broader markets.
With AUM of $27.9 billion, this fund offers exposure to 183 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. Information technology, healthcare, communication and consumer staples are the top four sectors accounting for a double-digit allocation each. The product charges 15 bps in annual fees and trades in a solid average daily volume of 2.9 million shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings.
This fund tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks that have the highest-quality score based on three fundamental measures — return on equity, accruals ratio and financial leverage ratio. Holding 102 stocks in its basket, the ETF has amassed $3 billion in its asset base and trades in an average daily volume of 438,000 shares. It charges 15 bps in fees per year.
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5 ETF Zones Hitting Highs As Growth Worries Resurface
COVID-19, which pushed the market into a tailspin in March 2020, has resurfaced with the new Delta variant. This highly contagious variant of coronavirus is spreading rapidly in states with the lowest vaccination rates such as Alabama, Arkansas, Louisiana, Nevada, Missouri and Mississippi.
Per the U.S. Centers for Disease Control and Prevention data, cases of COVID-19 are up 70% over the previous week and deaths are up 26%, with most of the surge occurring in counties with below-average vaccination rates. The seven-day-average number of daily cases is now more than 26,000, more than twice its June low of around 11,000 cases.
Many health experts quoted on CNBC that the country, which just celebrated the Fourth of July with some of its first large gatherings in more than a year, is headed toward a “dangerous” fall season when Delta is expected to cause another surge in coronavirus cases (read: Celebrate Fourth of July With These ETFs).
The resurgence would lead to another wave of lockdowns and the reintroduction of indoor mask mandates, distancing and occupancy limits in certain parts of the country in the coming months. This risk of deceleration in economic growth has dampened investors’ risk appetite. Additionally, consumer sentiment, as measured by the University of Michigan, dropped to the lowest since February in early June. However, continued vaccine rollouts, expanded stimulus, a healing job market and the return of earnings growth bode well for the stock market rally.
Against this backdrop, we highlighted a number of ETFs from various zones that are hitting new highs in the latest trading sessions and could be compelling choices given the current fundamentals.
TIPS - Schwab U.S. TIPS ETF (SCHP - Free Report)
The cost of living in the United States has surged the most in 13 years as economic recovery has gathered momentum, suggesting that inflation is heating up. Consumer prices increased 5.4% year over year in June, representing the biggest monthly gain since August 2008. Amid the inflationary backdrop, investing in TIPS ETFs, which offer shelter against rising inflation, would be prudent. It not only combats increasing prices but also protects income for the long term.
While many TIPS ETFs are trading at all-time highs, SCHP tracks the Bloomberg Barclays US Treasury Inflation-Linked Bond Index (Series-L), holding 50 securities in its basket. It has an effective duration of 7.40 years and an average maturity of 7.90 years. SCHP is among the cheapest option in the TIPS space, charging just 5 bps in annual fees. It has AUM to $18.3 billion and trades in a solid volume of 2.3 million shares a day.
Dividend Aristocrats - WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report)
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Additionally, aristocrats tend to skew the portfolio to less volatile sectors and mature companies (read: 5 Market-Beating Dividend ETFs of 1H2021).
This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $6.1 billion in its asset base and charges 28 bps in fees per year from investors. The ETF holds 298 securities in its basket, with each accounting for no more than 5.4% share. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Real Estate - iShares U.S. Real Estate ETF (IYR - Free Report)
Real estate stocks and ETFs often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields.
This ETF tracks the Dow Jones U.S. Real Estate Index. It holds a basket of 83 securities with each accounting for no more than 9% share. Specialized REITs dominate the portfolio at 38.8% followed by residential REITs (15.3%) and industrial REITs (10.4%). The fund has amassed $5.5 billion in its asset base while trading in heavy volume of 8 million shares a day on average. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Reasons Why REIT ETFs Are Surging).
Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
Low-volatility ETFs have the potential to outpace the broader market in an uncertain market environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to the defensive sectors that usually have a higher distribution yield than the broader markets.
With AUM of $27.9 billion, this fund offers exposure to 183 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. Information technology, healthcare, communication and consumer staples are the top four sectors accounting for a double-digit allocation each. The product charges 15 bps in annual fees and trades in a solid average daily volume of 2.9 million shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Quality - Invesco S&P 500 Quality ETF (SPHQ - Free Report)
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings.
This fund tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks that have the highest-quality score based on three fundamental measures — return on equity, accruals ratio and financial leverage ratio. Holding 102 stocks in its basket, the ETF has amassed $3 billion in its asset base and trades in an average daily volume of 438,000 shares. It charges 15 bps in fees per year.