Back to top

Image: Bigstock

Stocks to Remain Flat in 2023? ETF Strategies to Win

Read MoreHide Full Article

As we all know, Wall Street is under extreme pressure this year. The S&P 500 is off about 17% this year (as of Nov 29, 2022). Heightened rising rate worries amid super-hawkish Fed cues, red-hot inflation, China’s continuing zero-Covid restrictions, supply-chain woes and the Russia-Ukraine war have dampened Wall Street this year. The index even saw the worst start to a year since 1939.

No wonder, investors are interested in knowing how Wall Street will behave in 2023. Roughly a year from today, the S&P 500 will likely have gone nowhere, strategists at Bank of America Global Research said recently, as quoted on a Yahoo Finance article.

Equity strategists at BofA set a 2023 year-end price target of 4,000 on the benchmark index — an increase of less than 1% from Tuesday’s close of 3,957.63 — as annual earnings per share for the S&P 500 are likely to decline 9% next year to $200.

Meanwhile, Morgan Stanley’s Mike Wilson, who has an S&P 500 year-end target of 3,900 for next year, has warned that corporate America is getting ready to release downward earnings revisions that will hurt stocks. Analyst estimates have been steadily coming down, in line with the trend that we saw ahead of the start of the Q3 earnings season.

Estimates for full-year 2023 have been coming down as well, with the negative revisions trend particularly notable on an ex-Energy basis. You can see this in the chart below that shows the aggregate 2023 earnings estimate on an ex-Energy basis, per the Zacks Earnings Trend issued on Nov 16, 2022.

Morgan Stanley believes that the S&P could fall as much as 24% from Tuesday’s close in early 2023. Market watchers and participants are thus trying out different investing techniques to land on trustworthy investments. In this regard, below, we highlight a few interesting strategies.

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) .

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 50 securities traded on the S&P 500 Index that have historically provided high dividend yields and low volatility. It yields 3.82% 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 - Free Report) gives exposure to large and mid-capitalization U.S. companies with high free cash flow yields. It yields 1.79% 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. The fund charges 60 basis points (bps) in fees and yields 4.05% annually.

Moat ETFs

One way to stay afloat amid market volatility is to stay invested in moat ETFs. The term “economic moat” was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.”

In simple words, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time. VanEck Morningstar Wide Moat ETF (MOAT - Free Report) is down 12% this year (as of Nov 29, 2022), meaning that the fund has outdone the S&P 500 this year (read: Moat ETFs & Stocks: A Way to Fight Volatility).

Multi-Asset ETFs

The multi-asset strategy looks to boost returns and lower overall volatility in portfolios. These products normally provide a high level of current income and take care of downside risks of a specific asset class. These also cater to various asset classes (equity, fixed income and alternative securities), which have low correlation to each other.

iShares Morningstar Multi-Asset Income ETF (IYLD - Free Report) (yields 4.98% annually) and Arrow Dow Jones Global Yield ETF (GYLD - Free Report) (yields 4.51% annually) are two options (read: 4 Multi-Asset ETFs to Beat Volatility & Enjoy Solid Yields).

Long/Short ETFs

In a long-short investment strategy, the fund goes long on stocks that are expected to outperform the market, while taking short positions in stocks that are likely to underperform. These strategies have the potential to outperform in both rising and falling markets. They also add diversification benefits to a portfolio and lower volatility due to low correlations with the broader indexes. AGFiQ US Market Neutral AntiBeta ETF (BTAL - Free Report) is a winning option in this field.


Published in