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After registering the best quarterly gains in many years, Wall Street is once again caught in a web of woes, including rising interest rates and the resultant inflationary pressure, trade uncertainty, Iran oil sanctions, Italy political turbulence, Saudi tensions, and the mid-term U.S. election in November (read: Top and Flop ETFs of Last Week).
While these factors cannot be ignored, strong corporate earnings and a booming economy have been strong catalysts to the stock market rally this year. The dual tailwinds will continue to keep the positive momentum alive albeit at a slower pace.
The U.S. economy is witnessing the fastest pace of growth in nearly four years with a nearly 50-year low unemployment rate of 3.7% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth. Additionally, the Fed is on track for gradual rate hikes with the fourth increase of this year expected at the end of the year. A rising rate scenario also signals a strengthening economy, which is spurring growth in the stock market.
Given bullish fundamentals amid bouts of uncertainty, investors should focus on high-quality investing.
Why Quality Investing?
Quality stocks are rich in value characteristics with healthy balance sheets, 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. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term (read: Sector ETFs & Stocks to Bet for Q3 Earnings).
Given this, we have highlighted five ETFs targeting this niche strategy. Any of these could enjoy smooth trading and generate market-beating returns in a rocky market.
This fund provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index.
Expense Ratio: 0.15% AUM: $7 billion Average Daily Volume: 442,000 shares Top Sector: Information Technology
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 (read: 5 Tech ETFs That Tumbled Most on Broad Market Rout).
Expense Ratio: 0.15% AUM: $1.3 billion Average Daily Volume: 147,000 shares Top Sector: Information Technology
This ETF seeks to track the performance of the rules-based and fundamentals-driven Barron’s 400 Index. The benchmark uses the MarketGrader's fundamental analysis to select America’s highest-performing stocks based on growth, valuation, profitability and cash flow.
Expense Ratio: 0.65% AUM: $176.6 million Average Daily Volume: 8,000 shares Top Sector: Industrials
FlexShares Quality Dividend Index Fund (QDF - Free Report)
This ETF follows the Northern Trust Quality Dividend Index and uses a proprietary model that includes factors like profitability, management efficiency and cash flow (read: Winning ETF Strategies for the Fourth Quarter).
Expense Ratio: 0.37% AUM: $1.8 billion Average Daily Volume: 110,000 shares Top Sector: Information Technology
This fund offers exposure to stocks that have a combination of value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Index.
Expense Ratio: 0.15% AUM: $107.4 million Average Daily Volume: 8,000 shares Top Sector: Information Technology
Bottom Line
Quality ETFs often provide hedge against market volatility. Adding any of the abovementioned products to one’s long-term portfolio could be a good move given their credit worthiness and soundness.
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5 Quality ETFs for a Healthy Portfolio
After registering the best quarterly gains in many years, Wall Street is once again caught in a web of woes, including rising interest rates and the resultant inflationary pressure, trade uncertainty, Iran oil sanctions, Italy political turbulence, Saudi tensions, and the mid-term U.S. election in November (read: Top and Flop ETFs of Last Week).
While these factors cannot be ignored, strong corporate earnings and a booming economy have been strong catalysts to the stock market rally this year. The dual tailwinds will continue to keep the positive momentum alive albeit at a slower pace.
The U.S. economy is witnessing the fastest pace of growth in nearly four years with a nearly 50-year low unemployment rate of 3.7% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth. Additionally, the Fed is on track for gradual rate hikes with the fourth increase of this year expected at the end of the year. A rising rate scenario also signals a strengthening economy, which is spurring growth in the stock market.
Given bullish fundamentals amid bouts of uncertainty, investors should focus on high-quality investing.
Why Quality Investing?
Quality stocks are rich in value characteristics with healthy balance sheets, 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. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term (read: Sector ETFs & Stocks to Bet for Q3 Earnings).
Given this, we have highlighted five ETFs targeting this niche strategy. Any of these could enjoy smooth trading and generate market-beating returns in a rocky market.
ETF Picks
iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report)
This fund provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index.
Expense Ratio: 0.15%
AUM: $7 billion
Average Daily Volume: 442,000 shares
Top Sector: Information Technology
Invesco S&P 500 Quality ETF (SPHQ - Free Report)
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 (read: 5 Tech ETFs That Tumbled Most on Broad Market Rout).
Expense Ratio: 0.15%
AUM: $1.3 billion
Average Daily Volume: 147,000 shares
Top Sector: Information Technology
Barron's 400 ETF (BFOR - Free Report)
This ETF seeks to track the performance of the rules-based and fundamentals-driven Barron’s 400 Index. The benchmark uses the MarketGrader's fundamental analysis to select America’s highest-performing stocks based on growth, valuation, profitability and cash flow.
Expense Ratio: 0.65%
AUM: $176.6 million
Average Daily Volume: 8,000 shares
Top Sector: Industrials
FlexShares Quality Dividend Index Fund (QDF - Free Report)
This ETF follows the Northern Trust Quality Dividend Index and uses a proprietary model that includes factors like profitability, management efficiency and cash flow (read: Winning ETF Strategies for the Fourth Quarter).
Expense Ratio: 0.37%
AUM: $1.8 billion
Average Daily Volume: 110,000 shares
Top Sector: Information Technology
SPDR MSCI USA StrategicFactors ETF (QUS - Free Report)
This fund offers exposure to stocks that have a combination of value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Index.
Expense Ratio: 0.15%
AUM: $107.4 million
Average Daily Volume: 8,000 shares
Top Sector: Information Technology
Bottom Line
Quality ETFs often provide hedge against market volatility. Adding any of the abovementioned products to one’s long-term portfolio could be a good move given their credit worthiness and soundness.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>