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IMF Cuts Global Growth Forecast: ETF Strategies to Win

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The International Monetary Fund (IMF) has forecast global growth of 3.2% for this year and 2.9% for the next. The forecast fell by 0.4 percentage points and 0.7 percentage point from the April report. Sky-high global inflation, a worse-than-expected slowdown in China and the adverse effect of the Russia-Ukraine war are weighing on the global growth outlook.

Notably, global growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic crushed global output in 2020 with a 3.1% contraction. "The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one," IMF Chief Economist Pierre-Olivier Gourinchas said in a statement, as quoted on a Reuters article.

Global growth has slipped below 2% only five times since 1970, the IMF said, including the 2020 COVID-19 recession, the Reuters article noted. The IMF now expects the 2022 inflation rate in advanced economies to reach 6.6%, up from 5.7% in the April forecasts. IMF also expects high inflation to stay. Inflation in emerging markets and developing countries is now expected to reach 9.5% in 2022, up from 8.7% in April.

Monetary policy tightening that central banks are following to tame inflation will weigh on next year’s growth. For the United States, the IMF confirmed its July 12 forecasts of 2.3% growth in 2022 and an anemic 1.0% for 2023, after slashing it twice since April on slowing demand.

The fund lowered China's 2022 GDP growth forecast to 3.3% from 4.4% in April, indicating COVID-19 outbreaks and widespread lockdowns cut production and worsened global supply chains. The IMF cut its eurozone growth outlook for 2022 to 2.6% from 2.8% in April.

Russia's economy is expected to contract by 6.0% in 2022 due to the war and West’s abandonment. Ukraine's economic growth will likely fall by some 45%. Against this backdrop, below, we highgliht a few ETF strategies to win in the coming days.  

Bet on Small-Cap U.S. Stocks

U.S. small-cap stocks have been staging a decent performance in recent times. Small-cap stocks have more domestic exposure and are thus less exposed to the global slowdown and supply chains. Per the Earnings Trends issued on Jul 20, 2022, the S&P 500 earnings are projected to grow 3.7% in Q2 on 9.6% higher revenues. Looking at Q2 as a whole for the small-cap index, total earnings are expected to be up 8.9% from the same period last year on 12.4% higher revenues. SPDR S&P 600 Small Cap ETF (SLY - Free Report) is a good pick.

Value ETFs Worth a Look

To contain inflation, several central banks are raising rates. A higher interest environment is beneficial for value stocks more than growth stocks. Value stocks also have strong fundamentals — higher earnings, dividends, book value and cash flow. Vanguard Value ETF (VTV - Free Report) seems to be a nice pick.

Cash is King Now

In any kind of slowdown, cash proves to be a king. Cash-rich companies look to be safer bets. Pacer Global Cash Cows Dividend ETF (GCOW - Free Report) , which follows the Pacer Global Cash Cows Dividend Index, uses an objective, rules-based methodology to provide exposure to global companies with high dividend yields backed by a high free cash flow yield. GCOW yields 4.70% and charges 60 bps in fees.

Dividends Are Always Alluring

The dividend-paying securities are the major sources of consistent income for investors and everybody wants to have these as they offer protection in a market crash and save capital loss. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices.

Zacks Rank #2 (Buy) SPDR S&P Dividend ETF (SDY - Free Report) follows the S&P High Yield Dividend Aristocrats Index, which measures the performance of the highest dividend-yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years. SDY charges 35 bps in fees and yields 2.74% annually.

Quality ETF: Yet Another Option

Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth.

FlexShares Quality Dividend ETF (QDF - Free Report) offers two winning factors – quality and dividend. The underlying Northern Trust Quality Dividend Index is designed to provide exposure to a high-quality, income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust 1250 Index and the Index are selected based on the expected dividend payment and fundamental factors. The fund QDF charges 37 bps in fees and yields 2.36% annually.