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Focus on These ETF Areas to Combat Market Uncertainties

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Wall Street is continuing to show weakness in the current month and has remained volatile. The broad market indices like the S&P 500 and the Nasdaq Composite have declined 0.2% and 0.5%, respectively on Oct 8. Multiple issues have been impacting investor sentiments of late.

The latest jobs report for September has turned out to be disappointing as the U.S. economy has added the lowest so far this year. Notably, 194,000 jobs were added in September, missing the forecast of 500,000. Nonfarm employment has risen by 17.4 million since a recent trough in April 2020 but is down 3.3% from its pre-pandemic level in February 2020.

Going on, investors may have to handle certain issues like inflationary pressure, supply-chain challenges, possibilities of the Fed tapering the fiscal stimulus, China’s Evergrande crisis along with concerns over a debt-ceiling breach in October. These factors can also keep the stock market volatile.

The rapid spread of the COVID-19 Delta variant has resulted in a section of market analysts and financial experts curtailing their forecast for third-quarter U.S. economic growth.

Notably, higher inflationary pressure might persist next year owing to prolonged supply-chain disruptions due to the pandemic. Fed Chairman Jerome Powell has also signaled that the central bank will begin tapering its $120 billion per month bond-buy program possibly this year, and the first hike in interest rates may happen as early as the second half of 2022. Consequently, yields on government bonds have been spiking significantly.

ETF Areas to Consider

Let’s look at some safe ETF strategies that investors can play, keeping in mind certain burning issues that can flare up uncertainty in the near term:

Dividend Aristocrat ETFs to Focus on

Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front and market uncertainty triggered by the pandemic and deceleration in global growth.

These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are primarily suitable for risk-averse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can consider like Vanguard Dividend Appreciation ETF (VIG - Free Report) , SPDR S&P Dividend ETF (SDY - Free Report) , iShares Select Dividend ETF (DVY) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) (read: September's Weak History Turning True: 5 ETF Buying Zones).

Low-Volatility ETFs to Manage Market Uncertainties

Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly safe products usually do not surge in bull market conditions but offer more protection than the unpredictable ones. Providing more stable cash flow than the overall market, these funds are less cyclical. Here are some options --  iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , iShares Edge MSCI EAFE Minimum Volatility ETF (EFAV), iShares Edge MSCI Min Vol Global ETF (ACWV), Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) (read: Ride Out the Volatile October Month With These ETFs).

Quality ETFs to Enhance Portfolio Composition

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 increasing sales and earnings growth. Compared to plain vanilla funds, these products help lower volatility and perform relatively well during market uncertainty. Further, academic research has proven that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.

Given this, we have highlighted some ETFs like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ - Free Report) and FlexShares Quality Dividend Index Fund (QDF) targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market environment (read: Why You Should Invest in Quality Stocks & ETFs Now).

Consumer Staples ETFs to Watch Out For

The consumer staples sector is known for its non-cyclical nature and acts as a safe haven during unstable market conditions. Moreover, like utility, consumer staples is considered a stable sector for the long term as its players are likely to offer decent returns. Investors can consider parking their money in the non-cyclical consumer staples sector during an economic recession. This high-quality sector, which is mainly defensive, has been found to have a low correlation factor with economic cycles.

Research has shown that consumer staples companies have been mostly found to outperform during market turbulences. Thus, the space generally acts as a safe haven for investors. Moreover, consumer staples stocks have more stable profit levels in a contracting economy.

Given this, we have highlighted some ETFs like The Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) , Fidelity MSCI Consumer Staples Index ETF (FSTA) and iShares U.S. Consumer Staples ETF (IYK) for investors to consider (read: Should You Invest in Consumer Staples ETFs? Let's Explore).