We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Defensive ETF Bets as Omicron Enters the United States
Read MoreHide Full Article
The highly mutated new COVID-19 variant, omicron, has finally entered the United States. Dr. Anthony Fauci has confirmed that the first case has been detected in California in a traveler who had arrived from South Africa on Nov 22 and was tested to be positive on Nov 29 (per a CNN report). The new variant is feared to be carrying the combined features of the previous variants and can have high transmissibility and lower vaccine potency.
Federal Reserve Chair Jerome Powell has also adversely impacted market sentiments by mentioning that the central bank will be discussing speeding up the tapering process from the $15 billion-a-month schedule decided previously, per a CNBC article. This move might be taken to control the persistently high inflation levels, given that the U.S. economy is strongly recovering from the pandemic-led slump.
Against this backdrop, let’s take a look at some defensive ETF options that investors can consider like Vanguard Dividend Appreciation ETF (VIG - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , SPDR Gold Shares (GLD - Free Report) and Vanguard Consumer Staples ETF (VDC - Free Report) .
Commenting over the new variant, Pasi Penttinen, public health emergency response manager at the European Centre for Disease Prevention and Control, has recently said that “It looks like this particular variant has a very concerning set of mutations especially in the spike protein, which is needed for its transmission properties as well as its protection against the vaccines, so based on the genetic information we are quite concerned about it,” per a CNBC article.
Moderna (MRNA - Free Report) CEO Stephane Bancel’s comment to the Financial Times on Nov 29, claiming that he anticipates the existing COVID-19 vaccines to prove comparatively less effective against the new strain, has brought about a new wave of concerns (as stated in a CNBC article). The omicron variant has now been reported in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong. Going on, the World Health Organization (WHO) has labeled the variant as a “variant of concern.” At least 70 countries and territories are believed to have put travel restrictions from several African countries to control the outbreak, per a CNN report.
Going on, consumers also continue to remain concerned under the rising heat of inflation levels. The latest data from the Conference Board highlights the depleting consumer confidence levels, as the metric just touched the nine-month-low level in November. The Conference Board's measure of consumer confidence index stands at 109.5 in November, down from October’s reading of 111.6. October’s reading was almost in line with the consensus estimate of the metric, coming in at 111, per a Reuters’ poll. The metric continues to be below the pre-pandemic level of 132.6 in February 2020.
Defensive ETFs in Focus
Given the current market conditions,we have highlighted some ETFs like:
Vanguard Dividend Appreciation ETF
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. 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 a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk-averse long-term investors.
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $66.09 billion. VIG follows the S&P U.S. Dividend Growers Index. Vanguard Dividend Appreciation ETF charges 6 basis points (bps) in annual fees (read: Take Shelter in Dividend Aristocrat ETFs as COVID-19 Cases Rise).
Invesco S&P 500 Low Volatility ETF
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.
Invesco S&P 500 Low Volatility ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 101 securities in its basket. Invesco S&P 500 Low Volatility ETF has AUM of $8.01 billion and charges an expense ratio of 25 bps, as stated in the prospectus (read: Low-Volatility ETFs in Focus on Virus & Fed Taper Worries).
iShares MSCI USA Quality Factor ETF
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 rather 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.
iShares MSCI USA Quality Factor ETF provides exposure to the 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. With AUM of $24.79 billion, QUAL charges 0.15% in fees (read: ETF Asset Report of November: S&P 500 Wins).
Considering the current scenario, gold prices have been rising. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. The yellow metal has also earned its reputation as a safe haven asset.
SPDR Gold Shares is the largest and most popular ETF in the gold space, with AUM of $56.99 billion. GLD reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of SPDR Gold Shares represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Gold ETFs to Gain on Omicron & Inflation? ).
Vanguard Consumer Staples ETF
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 largely defensive, has been found to have a low correlation factor with economic cycles.
Vanguard Consumer Staples ETF seeks to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. With AUM of $6 billion, VDC has an expense ratio of 10 bps (read: ETFs to Gain on Strong Q3 Walmart Earnings).
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
5 Defensive ETF Bets as Omicron Enters the United States
The highly mutated new COVID-19 variant, omicron, has finally entered the United States. Dr. Anthony Fauci has confirmed that the first case has been detected in California in a traveler who had arrived from South Africa on Nov 22 and was tested to be positive on Nov 29 (per a CNN report). The new variant is feared to be carrying the combined features of the previous variants and can have high transmissibility and lower vaccine potency.
Federal Reserve Chair Jerome Powell has also adversely impacted market sentiments by mentioning that the central bank will be discussing speeding up the tapering process from the $15 billion-a-month schedule decided previously, per a CNBC article. This move might be taken to control the persistently high inflation levels, given that the U.S. economy is strongly recovering from the pandemic-led slump.
Against this backdrop, let’s take a look at some defensive ETF options that investors can consider like Vanguard Dividend Appreciation ETF (VIG - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , SPDR Gold Shares (GLD - Free Report) and Vanguard Consumer Staples ETF (VDC - Free Report) .
Commenting over the new variant, Pasi Penttinen, public health emergency response manager at the European Centre for Disease Prevention and Control, has recently said that “It looks like this particular variant has a very concerning set of mutations especially in the spike protein, which is needed for its transmission properties as well as its protection against the vaccines, so based on the genetic information we are quite concerned about it,” per a CNBC article.
Moderna (MRNA - Free Report) CEO Stephane Bancel’s comment to the Financial Times on Nov 29, claiming that he anticipates the existing COVID-19 vaccines to prove comparatively less effective against the new strain, has brought about a new wave of concerns (as stated in a CNBC article). The omicron variant has now been reported in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong. Going on, the World Health Organization (WHO) has labeled the variant as a “variant of concern.” At least 70 countries and territories are believed to have put travel restrictions from several African countries to control the outbreak, per a CNN report.
Going on, consumers also continue to remain concerned under the rising heat of inflation levels. The latest data from the Conference Board highlights the depleting consumer confidence levels, as the metric just touched the nine-month-low level in November. The Conference Board's measure of consumer confidence index stands at 109.5 in November, down from October’s reading of 111.6. October’s reading was almost in line with the consensus estimate of the metric, coming in at 111, per a Reuters’ poll. The metric continues to be below the pre-pandemic level of 132.6 in February 2020.
Defensive ETFs in Focus
Given the current market conditions,we have highlighted some ETFs like:
Vanguard Dividend Appreciation ETF
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. 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 a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk-averse long-term investors.
Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $66.09 billion. VIG follows the S&P U.S. Dividend Growers Index. Vanguard Dividend Appreciation ETF charges 6 basis points (bps) in annual fees (read: Take Shelter in Dividend Aristocrat ETFs as COVID-19 Cases Rise).
Invesco S&P 500 Low Volatility ETF
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.
Invesco S&P 500 Low Volatility ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 101 securities in its basket. Invesco S&P 500 Low Volatility ETF has AUM of $8.01 billion and charges an expense ratio of 25 bps, as stated in the prospectus (read: Low-Volatility ETFs in Focus on Virus & Fed Taper Worries).
iShares MSCI USA Quality Factor ETF
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 rather 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.
iShares MSCI USA Quality Factor ETF provides exposure to the 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. With AUM of $24.79 billion, QUAL charges 0.15% in fees (read: ETF Asset Report of November: S&P 500 Wins).
SPDR Gold Shares (GLD - Free Report)
Considering the current scenario, gold prices have been rising. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. The yellow metal has also earned its reputation as a safe haven asset.
SPDR Gold Shares is the largest and most popular ETF in the gold space, with AUM of $56.99 billion. GLD reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of SPDR Gold Shares represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Gold ETFs to Gain on Omicron & Inflation? ).
Vanguard Consumer Staples ETF
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 largely defensive, has been found to have a low correlation factor with economic cycles.
Vanguard Consumer Staples ETF seeks to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. With AUM of $6 billion, VDC has an expense ratio of 10 bps (read: ETFs to Gain on Strong Q3 Walmart Earnings).