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5 ETFs to Counter Imminent War-Induced Global Growth Slowdown
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The pandemic-driven supply chain woes and the resultant red-hot inflation, the Russia-Ukraine war and the resultant hit to the commodity market as well as the central banks’ policy tightening in the developed world may cause severe global growth slowdown over the medium term, if we go by some analysts. There’s a 35% chance that the S&P 500 could fall into a bear market, per Bank of America, as quoted on CNBC.
The probability of a U.S. recession next year may be as high as 35%, according to economists at Goldman Sachs Group Inc. per a Bloomberg article, quoted on Yahoo Finance. Bank of America Corp. said the risk of an economic downturn is low for now, but higher next year. The Fed is unlikely to control the latest equity market selloff, according to George Saravelos, Deutsche Bank’s global head of currency research, as the inflation is being driven by supply shock.
Food prices have already been soaring, and the outbreak of a war between Russia and Ukraine -- which together make up 28% of global wheat exports and 16% of corn, according to UBS Global Wealth Management -- only adds to risks, the same article revealed.
The International Monetary Fund expects to slash its global growth forecast to account for the economic consequences of the Russian invasion of Ukraine. In its January outlook, the IMF projected global growth of 4.4% in 2022, a moderate deceleration from the 5.9% growth logged in 2021.
Against this backdrop, below we highlight a few ETFs that could safeguard one’s portfolio amid mounting slowdown risks.
If global growth slows down, the demand for the safe-haven asset gold will likely to go up. Plus, gold is considered as an inflation-beating tool. No wonder, gold mining companies will do well in the current market uncertainties. This is especially true given that mining companies often give leveraged exposure to the underlying metal (read: Gold Regains Luster: ETF Ways to Tap the Rally).
Vanguard International Dividend Appreciation ETF VIGI
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. So, this is a kind of safe exposure. These products form a strong portfolio, with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields.
The underlying S&P Global Ex-U.S. Dividend Growers Index focuses on high-quality companies located in developed and emerging markets, excluding the United States, that have both the ability and the commitment to grow their dividends over time. The fund VIGI yields 8.04% annually.
The consumer staples sector is known for its non-cyclical nature and acts as a safe haven during unstable market conditions. Food-at-home inflation in the United States is rising faster than food-away-from home inflation, indicating the hot groceries market. Consumer staples normally pass on cost increases to consumers to maintain profit margin. With consumer staples being a non-cyclical sector, the sheer necessities of staples can’t even deter consumers from buying those goods. Hence, the sector should hold up well in the current phase of 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. These funds are less cyclical, providing more stable cash flow than the overall market.
iShares Evolved U.S. Innovative Healthcare ETF
As long as the virus threat is around us, extra focus on healthcare stocks is warranted and these should be up for gains. U.S. healthcare spending increased by 9.7% (biggest in about two decades) in 2020 to touch $4.1 trillion mainly due to the impacts of the COVID-19 pandemic. As a result of the steep increase, healthcare’s share of gross domestic product recorded a considerable increase from 17.6% in 2019 to 19.7% (largest on record) in 2020.
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5 ETFs to Counter Imminent War-Induced Global Growth Slowdown
The pandemic-driven supply chain woes and the resultant red-hot inflation, the Russia-Ukraine war and the resultant hit to the commodity market as well as the central banks’ policy tightening in the developed world may cause severe global growth slowdown over the medium term, if we go by some analysts. There’s a 35% chance that the S&P 500 could fall into a bear market, per Bank of America, as quoted on CNBC.
The probability of a U.S. recession next year may be as high as 35%, according to economists at Goldman Sachs Group Inc. per a Bloomberg article, quoted on Yahoo Finance. Bank of America Corp. said the risk of an economic downturn is low for now, but higher next year. The Fed is unlikely to control the latest equity market selloff, according to George Saravelos, Deutsche Bank’s global head of currency research, as the inflation is being driven by supply shock.
Food prices have already been soaring, and the outbreak of a war between Russia and Ukraine -- which together make up 28% of global wheat exports and 16% of corn, according to UBS Global Wealth Management -- only adds to risks, the same article revealed.
The International Monetary Fund expects to slash its global growth forecast to account for the economic consequences of the Russian invasion of Ukraine. In its January outlook, the IMF projected global growth of 4.4% in 2022, a moderate deceleration from the 5.9% growth logged in 2021.
Against this backdrop, below we highlight a few ETFs that could safeguard one’s portfolio amid mounting slowdown risks.
ETFs in Focus
iShares MSCI Global Gold Miners ETF (RING - Free Report)
If global growth slows down, the demand for the safe-haven asset gold will likely to go up. Plus, gold is considered as an inflation-beating tool. No wonder, gold mining companies will do well in the current market uncertainties. This is especially true given that mining companies often give leveraged exposure to the underlying metal (read: Gold Regains Luster: ETF Ways to Tap the Rally).
Vanguard International Dividend Appreciation ETF VIGI
Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. So, this is a kind of safe exposure. These products form a strong portfolio, with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields.
The underlying S&P Global Ex-U.S. Dividend Growers Index focuses on high-quality companies located in developed and emerging markets, excluding the United States, that have both the ability and the commitment to grow their dividends over time. The fund VIGI yields 8.04% annually.
Vanguard Consumer Staples ETF (VDC - Free Report)
The consumer staples sector is known for its non-cyclical nature and acts as a safe haven during unstable market conditions. Food-at-home inflation in the United States is rising faster than food-away-from home inflation, indicating the hot groceries market. Consumer staples normally pass on cost increases to consumers to maintain profit margin. With consumer staples being a non-cyclical sector, the sheer necessities of staples can’t even deter consumers from buying those goods. Hence, the sector should hold up well in the current phase of uncertainties.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
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. These funds are less cyclical, providing more stable cash flow than the overall market.
iShares Evolved U.S. Innovative Healthcare ETF
As long as the virus threat is around us, extra focus on healthcare stocks is warranted and these should be up for gains. U.S. healthcare spending increased by 9.7% (biggest in about two decades) in 2020 to touch $4.1 trillion mainly due to the impacts of the COVID-19 pandemic. As a result of the steep increase, healthcare’s share of gross domestic product recorded a considerable increase from 17.6% in 2019 to 19.7% (largest on record) in 2020.