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Seek Refuge in These 5 Solid ETFs Despite Market Mayhem
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The Russia-Ukraine war crisis, inflation at a 40-year high level and the Fed’s hawkish outlook for the interest rate are consistently giving investors jitters. As the Russia-Ukraine tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, as the Federal Reserve has high chances of increasing the rates, market participants are worrying about the U.S. economy slipping into stagflation due to high interest rates and steep inflation.
Wall Street is also persistently bearing the brunt of the existing market ambiguity. The Dow Jones Industrial Average has been already down 7.7% so far in 2022, troubled by a hawkish Fed and surging inflation levels at the start of the year. The other two broad market indices, namely the S&P 500 and the Nasdaq composite are also down 10.6% and 17.2%, respectively.
Market experts believe that the ongoing Russia-Ukraine strife may slow down many countries' economic growth. In fact, analysts are projecting the European economic growth to slow down and might enter a recession. It is also estimated that the geopolitical crisis may deplete Kremlin’s economic growth by double-digits. The outlook for U.S. equity is also disappointing as major strategists like Citi to UBS, Yardeni Research and Evercore ISI slashed their estimates amid the war crisis. In fact, the S&P 500 is projected to decline 16% in 2022 to end at 4,000 by Ed Yardeni, per a CNBC article.
Considering the tough market conditions, let’s find out some investment options for the market participants who wish to ride safe.
Defensive ETFs in Focus
Given the current market conditions,we highlighted some ETFs like:
Amid a complicated market environment, investors prefer investments that can be a reliable source for consistent and dependable income. In such a scenario, dividend aristocrats can come to the rescue. These are basically blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors 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 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.
The SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has an AUM of $20.24 billion. SDY charges 35 basis points (bps) in fees per year (read: Guide to Dividend Aristocrat ETFs).
The healthcare sector stands as a good defensive investment option as several investors believe that consumers will have to purchase healthcare products even during tough and uncertain times. Currently, the Russia-Ukraine war crisis and the chances of a Fed rate hike caused a lot of uncertainty in the markets. Undoubtedly, the pandemic also triggered a race to introduce vaccines, tests and treatment options, opening up investment opportunities in the healthcare sector.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
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, is found to have a low correlation factor with economic cycles.
Fidelity MSCI Consumer Staples Index ETF seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Consumer Staples Index. FSTA has an AUM of $951.2 million and charges 8 bps of fees (read: ETFs to Gain Post Solid Walmart Q4 Earnings).
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 better 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.
The Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of the S&P 500 stocks with the highest-quality score based on three fundamental measures, namely, the return on equity, accruals ratio and the financial leverage ratio. With an AUM of $3.73 billion, SPHQ charges 0.15% of fees.
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 MSCI USA Min Vol Factor ETF offers exposure to 172 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With an AUM of $26.54 billion, iShares MSCI USA Min Vol Factor ETF charges 0.15% as expense ratio.
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Seek Refuge in These 5 Solid ETFs Despite Market Mayhem
The Russia-Ukraine war crisis, inflation at a 40-year high level and the Fed’s hawkish outlook for the interest rate are consistently giving investors jitters. As the Russia-Ukraine tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, as the Federal Reserve has high chances of increasing the rates, market participants are worrying about the U.S. economy slipping into stagflation due to high interest rates and steep inflation.
Wall Street is also persistently bearing the brunt of the existing market ambiguity. The Dow Jones Industrial Average has been already down 7.7% so far in 2022, troubled by a hawkish Fed and surging inflation levels at the start of the year. The other two broad market indices, namely the S&P 500 and the Nasdaq composite are also down 10.6% and 17.2%, respectively.
Market experts believe that the ongoing Russia-Ukraine strife may slow down many countries' economic growth. In fact, analysts are projecting the European economic growth to slow down and might enter a recession. It is also estimated that the geopolitical crisis may deplete Kremlin’s economic growth by double-digits. The outlook for U.S. equity is also disappointing as major strategists like Citi to UBS, Yardeni Research and Evercore ISI slashed their estimates amid the war crisis. In fact, the S&P 500 is projected to decline 16% in 2022 to end at 4,000 by Ed Yardeni, per a CNBC article.
Considering the tough market conditions, let’s find out some investment options for the market participants who wish to ride safe.
Defensive ETFs in Focus
Given the current market conditions,we highlighted some ETFs like:
SPDR S&P Dividend ETF (SDY - Free Report)
Amid a complicated market environment, investors prefer investments that can be a reliable source for consistent and dependable income. In such a scenario, dividend aristocrats can come to the rescue. These are basically blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors 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 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.
The SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has an AUM of $20.24 billion. SDY charges 35 basis points (bps) in fees per year (read: Guide to Dividend Aristocrat ETFs).
Vanguard Health Care ETF (VHT - Free Report)
The healthcare sector stands as a good defensive investment option as several investors believe that consumers will have to purchase healthcare products even during tough and uncertain times. Currently, the Russia-Ukraine war crisis and the chances of a Fed rate hike caused a lot of uncertainty in the markets. Undoubtedly, the pandemic also triggered a race to introduce vaccines, tests and treatment options, opening up investment opportunities in the healthcare sector.
Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. VHT has an AUM of $16.12 billion and charges 10 bps of fees (read: China's COVID-19 Lockdown Brings Back Focus on Healthcare ETFs).
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
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, is found to have a low correlation factor with economic cycles.
Fidelity MSCI Consumer Staples Index ETF seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Consumer Staples Index. FSTA has an AUM of $951.2 million and charges 8 bps of fees (read: ETFs to Gain Post Solid Walmart Q4 Earnings).
Invesco S&P 500 Quality ETF (SPHQ - Free Report)
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 better 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.
The Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of the S&P 500 stocks with the highest-quality score based on three fundamental measures, namely, the return on equity, accruals ratio and the financial leverage ratio. With an AUM of $3.73 billion, SPHQ charges 0.15% of fees.
iShares MSCI USA Min Vol Factor ETF (USMV - 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 MSCI USA Min Vol Factor ETF offers exposure to 172 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With an AUM of $26.54 billion, iShares MSCI USA Min Vol Factor ETF charges 0.15% as expense ratio.