Wall Street participants have been keeping a keen eye on the bond market and developments in the Russia-Ukraine peace talks. The Dow Jones Industrial Average snapped its four-day winning streak on Mar 30 and declined 0.2%. The other two broad market indices, the S&P 500 and the Nasdaq Composite, also lost 0.6% and 1.2%, respectively.
Market participants have been having bouts of fear since the inversion of the U.S. 5-year and 30-year Treasury yields on Mar 28 for the first time since 2016. Intensifying the concerns, the spread between the 2-year and the 10-year rate was about to invert on Mar 29. These movements in the bond market intensified the fears of the U.S. economy heading into a recession. Notably, the spread between the 2-year and 10-year yields remained near 3 basis points on Mar 30.
In this regard, Stephanie Lang, chief investment officer at Homrich Berg, has commented that “The big talk right now is that at any given point in time, recession can be on the horizon. Typically, you won’t see a recession for an average of 20 months once a yield curve inverts. Our antennas are up that recession risk is heightened; that doesn’t necessarily mean that there’ll be one this year, though next year is more of a concern for us,” as mentioned in a CNBC article.
Considering the tough market conditions, let’s find out some investment options for the market participants who wish to ride safe:
Vanguard Health Care ETF ( VHT Quick Quote VHT - Free Report)
The healthcare sector is 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 Fed’s aggressive stance on rate hike are causing a lot of market uncertainty. 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 AUM of $17.17 billion and charges 10 basis points (bps) of fees (read:
China's COVID-19 Lockdown Brings Back Focus on Healthcare ETFs). ProShares S&P 500 Dividend Aristocrats ETF ( NOBL Quick Quote NOBL - Free Report)
Dividend aristocrats are 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.
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL amassed $10.31 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35% (read:
Take Shelter in Dividend Aristocrat ETFs Amid Ukraine-Russia War). SPDR S&P MIDCAP 400 ETF Trust ( MDY Quick Quote MDY - Free Report)
Considering the mixed sentiments, mid-cap funds are gaining attention as they provide both growth and stability compared to their small-cap and large-cap counterparts. Investors seeking to capitalize on the strong fundamentals but are worried about uncertainties should consider mid-cap ETFs.
SPDR S&P MIDCAP 400 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and the yield performance of the S&P MidCap 400 Index. MDY has AUM of $20.83 billion. SPDR S&P MIDCAP 400 ETF Trust charges a fee of 23 bps (see:
all the Mid Cap ETFs here). iShares MSCI USA Quality Factor ETF ( QUAL Quick Quote QUAL - 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.
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 $23.43 billion, QUAL charges 0.15% of fees.
Invesco S&P 500 High Dividend Low Volatility ETF ( SPHD Quick Quote SPHD - 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.
Invesco S&P 500 High Dividend Low Volatility ETF seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF has AUM of $3.40 billion and charges 30 bps in annual fees (read:
Dividend ETFs Scaling New Highs).