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Bet on Quality ETFs to Combat the FOMC Meeting Worries
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Investors are on edge as all eyes are on the two-day Federal Open Market Committee (FOMC) meeting, which started on Mar 16. The Federal Reserve is expected to discuss the U.S. economic recovery so far and take its decision on the economic and interest rate forecasts. This will also highlight the Fed’s take on increasing rates by or before 2023, which investors are desperately waiting to know.
Meanwhile, rising U.S. 10-year Treasury Note yields also unsettled the market participants. Creating trouble for the high-growth technology sector in particular, the U.S. 10-year Treasury Note climbed to 1.642% on Mar 12, its highest since February 2020, per a CNBC article.
Further adding to the woes, Wells Fargo Securities’ Michael Schumacher expects the rates to climb as high as 2.25% in 2021 as mentioned in a CNBC article. Notably, the benchmark 10-year yield has been up 77% in the year-to-date period. According to a CNBC article, Michael Schumacher said that “the fiscal stimulus is enormous, and the vaccine rollout seems to be accelerating quite a bit — not just here in the U.S. A lot of things are coming together to push yields up.”
Importantly, an accelerated coronavirus vaccine rollout, introduction of another round of fiscal stimulus and the reopening of U.S. economy may lead to a path of faster U.S. economic recovery from the coronavirus pandemic-led economic slowdown.
Notably, President Joe Biden stated that the country is expected to have sufficient COVID-19 vaccines for adults who want to get vaccinated by the end of May, per a YahooFinance article. Encouragingly, Biden is also aiming for a situation where Americans can meet friends and families in small groups for celebrating the Fourth of July, according to a CNBC article.
The unemployment levels are also improving, signaling that the economy is on the mend. The U.S. economy added 379,000 jobs in February 2021 after a revised rise of 166,000 in January, beating market expectations of an increase of 182,000, per the verified sources.
Moving on, Biden finally signed the $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law. The coronavirus relief bill provides direct support to small businesses, $1,400 direct checks to Americans in the eligibility criteria, a rise in the child tax credit for a year, direct funding to state and local governments along with funding for schools and increased funds for coronavirus vaccine distribution and testing, per a CNBC article.
However, the stimulus checks’ income limits are now revised and the weekly unemployment benefits are reduced from $400 to $300 by the Senate and will run through September, as stated in the article.
The reopening of the U.S. economy is also boosting confidence. As the U.S. economic activities are resumed and gradually inches to normalcy, the demand for goods and services is likely to rise.
Quality ETFs Worth Your Attention
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and high margins. These stocks also have a track record of stable or rising sales and earnings growth. In comparison to the plain vanilla funds, these products help lower volatility and perform rather well during market uncertainties. Moreover, academic research proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.
Given that, we highlighted five ETFs targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market scenario.
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 (read: Are You a Fan of Ark ETFs' Cathie Wood? Follow This Portfolio).
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, such as return on equity, accruals ratio and financial leverage ratio (read: 5 Best ETF Investing Ideas for 2021).
Expense Ratio: 0.15%
AUM: $2.46 billion
FlexShares Quality Dividend Index Fund (QDF - Free Report)
This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Index.
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.
Image: Bigstock
Bet on Quality ETFs to Combat the FOMC Meeting Worries
Investors are on edge as all eyes are on the two-day Federal Open Market Committee (FOMC) meeting, which started on Mar 16. The Federal Reserve is expected to discuss the U.S. economic recovery so far and take its decision on the economic and interest rate forecasts. This will also highlight the Fed’s take on increasing rates by or before 2023, which investors are desperately waiting to know.
Meanwhile, rising U.S. 10-year Treasury Note yields also unsettled the market participants. Creating trouble for the high-growth technology sector in particular, the U.S. 10-year Treasury Note climbed to 1.642% on Mar 12, its highest since February 2020, per a CNBC article.
Further adding to the woes, Wells Fargo Securities’ Michael Schumacher expects the rates to climb as high as 2.25% in 2021 as mentioned in a CNBC article. Notably, the benchmark 10-year yield has been up 77% in the year-to-date period. According to a CNBC article, Michael Schumacher said that “the fiscal stimulus is enormous, and the vaccine rollout seems to be accelerating quite a bit — not just here in the U.S. A lot of things are coming together to push yields up.”
Importantly, an accelerated coronavirus vaccine rollout, introduction of another round of fiscal stimulus and the reopening of U.S. economy may lead to a path of faster U.S. economic recovery from the coronavirus pandemic-led economic slowdown.
Notably, President Joe Biden stated that the country is expected to have sufficient COVID-19 vaccines for adults who want to get vaccinated by the end of May, per a YahooFinance article. Encouragingly, Biden is also aiming for a situation where Americans can meet friends and families in small groups for celebrating the Fourth of July, according to a CNBC article.
The unemployment levels are also improving, signaling that the economy is on the mend. The U.S. economy added 379,000 jobs in February 2021 after a revised rise of 166,000 in January, beating market expectations of an increase of 182,000, per the verified sources.
Moving on, Biden finally signed the $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law. The coronavirus relief bill provides direct support to small businesses, $1,400 direct checks to Americans in the eligibility criteria, a rise in the child tax credit for a year, direct funding to state and local governments along with funding for schools and increased funds for coronavirus vaccine distribution and testing, per a CNBC article.
However, the stimulus checks’ income limits are now revised and the weekly unemployment benefits are reduced from $400 to $300 by the Senate and will run through September, as stated in the article.
The reopening of the U.S. economy is also boosting confidence. As the U.S. economic activities are resumed and gradually inches to normalcy, the demand for goods and services is likely to rise.
Quality ETFs Worth Your Attention
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and high margins. These stocks also have a track record of stable or rising sales and earnings growth. In comparison to the plain vanilla funds, these products help lower volatility and perform rather well during market uncertainties. Moreover, academic research proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.
Given that, we highlighted five ETFs targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market scenario.
iShares 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 (read: Are You a Fan of Ark ETFs' Cathie Wood? Follow This Portfolio).
Expense Ratio: 0.15%
AUM: $19.91 billion
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, such as return on equity, accruals ratio and financial leverage ratio (read: 5 Best ETF Investing Ideas for 2021).
Expense Ratio: 0.15%
AUM: $2.46 billion
FlexShares Quality Dividend Index Fund (QDF - Free Report)
This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Index.
Expense Ratio: 0.37%
AUM: $1.49 billion
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: $887.5 million
Barron's 400 ETF (BFOR - Free Report)
This ETF seeks investment results that correspond generally, before fees and expenses, to the performance of the Barron's 400 Index.
Expense Ratio: 0.65%
AUM: $140.2 million
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