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The global market is at a critical juncture right now. The pandemic-driven supply-chain woes and the resultant red-hot inflation, the Russia-Ukraine war that has led to the Western sanctions and the resultant hit to the commodity market, and the central banks’ policy tightening in the developed world to fight inflation may push the global economy into recession over the medium term, if we go by some analysts.
China went back to lockdown mode due to a spike in COVID-19 cases. The United States stopped Russian bond payments, raising risk of default. The Fed’s fight against inflation will trigger a recession in the United States that begins late next year, Deutsche Bank warned on Apr 5.
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 a Yahoo Finance article in mid-March. 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 broader market has become extremely volatile and news-driven. Bond Yields are going up and down every day. Accordingly, value and growth investing are flexing muscles alternatively. So, with a number of deterrents doing the rounds in the market, it is wise to look for quality while picking stocks. Market watchers and participants are thus trying out different investing techniques to land upon trustworthy stocks. In this regard, below we highlight a few interesting strategies.
Quality ETFs
No wonder, such a volatile environment calls for quality investments.SPDR MSCI USA StrategicFactors ETF (QUS) measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility.
There is VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) . The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages.” As a result, this fund calls for quality exposure. MOAT tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages.
Low-Volatility ETFs
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets. iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) andInvesco S&P 500 Low Volatility ETF (SPLV - Free Report) are two such examples in this regard.
Dividend Growth ETFs & High Dividend- Low Volatility ETFs
Companies that have the willingness and ability to pay and grow their dividend over time are called dividend aristocrats. Such activities make them quality picks. U.S.-based dividend growth ETFs include SPDR S&P Dividend ETF (SDY - Free Report) , which charges 35 bps in fees and yields 2.61% annually.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) is a winning combination of high dividend and low volatility – the need of the hour. The S&P 500 Low Volatility High Dividend Index comprises of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. It yields 3.27% annually.
Cash-Cow ETFs
Per Investopedia, “a cash cow can refer to a business, product or asset that, once acquired and paid off, will produce consistent cash flow over its lifespan.” In other words, these companies are known for continuous positive cash flows, reflecting their inherent strength. Since we know that a cash cushion is always needed in a rough market, one can easily look at the indicators related to cash flows to measure a company's performance.
Pacer US Cash Cows 100 ETF COWZgives exposure to large and mid-capitalization U.S. companies with high free cash flow yields. It charges 49 bps in fees and yields 1.45% annually. Meanwhile, Pacer Global Cash Cows Dividend ETF (GCOW - Free Report) offers exposure to global companies with high dividend yields backed by a high free cash flow yield. United States (32.33%), United Kingdom (18.74%) and Japan (13.97%) hold the top three spots in the fund. The fund charges 60 basis points (bps) in fees and yields 4.11% annually.
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How to Play Uncertainties in Q2 With ETFs?
The global market is at a critical juncture right now. The pandemic-driven supply-chain woes and the resultant red-hot inflation, the Russia-Ukraine war that has led to the Western sanctions and the resultant hit to the commodity market, and the central banks’ policy tightening in the developed world to fight inflation may push the global economy into recession over the medium term, if we go by some analysts.
China went back to lockdown mode due to a spike in COVID-19 cases. The United States stopped Russian bond payments, raising risk of default. The Fed’s fight against inflation will trigger a recession in the United States that begins late next year, Deutsche Bank warned on Apr 5.
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 a Yahoo Finance article in mid-March. 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 broader market has become extremely volatile and news-driven. Bond Yields are going up and down every day. Accordingly, value and growth investing are flexing muscles alternatively. So, with a number of deterrents doing the rounds in the market, it is wise to look for quality while picking stocks. Market watchers and participants are thus trying out different investing techniques to land upon trustworthy stocks. In this regard, below we highlight a few interesting strategies.
Quality ETFs
No wonder, such a volatile environment calls for quality investments.SPDR MSCI USA StrategicFactors ETF (QUS) measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility.
There is VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) . The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages.” As a result, this fund calls for quality exposure. MOAT tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages.
Low-Volatility ETFs
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets. iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) andInvesco S&P 500 Low Volatility ETF (SPLV - Free Report) are two such examples in this regard.
Dividend Growth ETFs & High Dividend- Low Volatility ETFs
Companies that have the willingness and ability to pay and grow their dividend over time are called dividend aristocrats. Such activities make them quality picks. U.S.-based dividend growth ETFs include SPDR S&P Dividend ETF (SDY - Free Report) , which charges 35 bps in fees and yields 2.61% annually.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) is a winning combination of high dividend and low volatility – the need of the hour. The S&P 500 Low Volatility High Dividend Index comprises of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. It yields 3.27% annually.
Cash-Cow ETFs
Per Investopedia, “a cash cow can refer to a business, product or asset that, once acquired and paid off, will produce consistent cash flow over its lifespan.” In other words, these companies are known for continuous positive cash flows, reflecting their inherent strength. Since we know that a cash cushion is always needed in a rough market, one can easily look at the indicators related to cash flows to measure a company's performance.
Pacer US Cash Cows 100 ETF COWZ gives exposure to large and mid-capitalization U.S. companies with high free cash flow yields. It charges 49 bps in fees and yields 1.45% annually. Meanwhile, Pacer Global Cash Cows Dividend ETF (GCOW - Free Report) offers exposure to global companies with high dividend yields backed by a high free cash flow yield. United States (32.33%), United Kingdom (18.74%) and Japan (13.97%) hold the top three spots in the fund. The fund charges 60 basis points (bps) in fees and yields 4.11% annually.