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BlackRock Sees More Volatility Ahead: ETF Strategies to Follow

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According to strategists at BlackRock Inc., stock volatility will remain rife in the coming days. High inflation and high debt levels -- which the International Monetary Fund estimates at 256% of global gross domestic product – is a key risk, per a Bloomberg article.

The Russia-Ukraine war and the supply chain issues from labor shortages will keep inflation at an elevated level. Hence, central banks will continue to tighten policies in the coming days. Hence, asset classes that offer value should be tapped now.

Below we highlight a few ETF strategies that can be relied upon in the current scenario.

Tap Government Bonds  

BlackRock sees some value in government debt. It favors inflation-linked bonds, especially those issued by European nations, and it turned overweight UK sovereign debt on July 11. Both are mispriced by the market, according to BlackRock, as quoted on the above-mentioned Bloomberg article.

Against this backdrop, investors can play iShares International Treasury Bond ETF (IGOV - Free Report) . The underlying FTSE World Government Bond Index - Developed Markets Capped comprises of non-U.S. developed market government bonds.

TIPS ETFs are also great plays. SPDR FTSE International Government Inflation-Protected Bond ETF (WIP) and iShares TIPS Bond ETF (T(IP - Free Report) can be played as the segment offers protection against high inflation.

Play Quality ETFs

No wonder, such a volatile environment calls for quality investments. SPDR MSCI USA StrategicFactors ETF (QUS - Free Report) measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility.

There is VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) . The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages.” As a result, this fund calls for quality exposure. MOAT tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages.

Time for Low-Volatility ETFs?

Low-volatility ETFs have the potential to outpace the broader market in an uncertain 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 defensive sectors that usually have a higher distribution yield than the broader markets. iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) and Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) are two such examples in this regard.

Dividend Growth ETFs & High Dividend- Low Volatility ETFs

Companies that have the willingness and ability to pay and grow their dividend over time are called dividend aristocrats. Such activities make them quality picks. U.S.-based dividend growth ETFs include SPDR S&P Dividend ETF (SDY - Free Report) , which charges 35 bps in fees and yields 2.81% annually.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) is a winning combination of high dividend and low volatility – the need of the hour. The S&P 500 Low Volatility High Dividend Index comprises of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. It yields 3.69% annually.


 

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