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Bank of America’s chief economist Michael Hartnett recently predicted a "no landing" scenario in the first half of the year, as quoted on Fox Business. “No Landing” scenario means where there is no prompt slowdown in growth but inflation remains above trend.
This, in turn, will give the Fed a leeway to act freely on the monetary policy tightening issue and keep rates higher for longer. Hartnett projected the S&P 500 could slip nearly 7% by early March due to this scenario.
The continuation of the Fed's aggressive policy tightening likely means that a "hard landing" scenario — in which the economy falls into a recession — will happen in the latter part of 2023, he said, per the abovementioned source.
Federal Reserve policymakers voted to raise interest rates eight consecutive times to a range of 4.5% to 4.75%, and hinted last month that a "couple more" increases are on the table this year. However, a host of hotter-than-expected economic data points almost confirmed the omnipresence of high consumer prices, has raised the threat of a higher peak rate.
While the expected scenario of hard-landing is not confirmed yet, investors should be prepared for any kind of “no landing” phases. This means higher inflation, decent economic growth and higher rates. Against this backdrop, below-mentioned ETFs could be great picks.
ETFs in Focus
Advocate Rising Rate Hedge ETF
As rates will likely to remain higher for longer, ETFs to fight rising rates are good bets. The Advocate Rising Rate Hedge ETF is a multi-asset ETF that seeks to generate capital appreciation during periods of rising long term interest rates, specifically interest rates with maturities of five years or longer.
The fund primarily invests in a combination of: U.S. Treasury securities; money-market funds; forwards, futures or options on various currencies; long and short positions on the short and long-end of the Treasury or swap yield curve via futures, swaps, forwards and other over-the-counter derivatives; long and short positions on equity indexes and/or sector ETFs; and commodity futures and options. The fund charges 85 bps in fees.
ETFs to inflation would be other great tools. The Ionic Inflation Protection ETF is an actively-managed ETF, which looks to generate positive returns during periods of rising inflation and inflation expectations as well as during periods of increasing long-term interest rates and fixed income volatility.
The fund invests primarily in a portfolio of inflation swap agreements on the Consumer Price Index, interest rate swaps, swaptions and U.S. Treasury Obligations including U.S. Treasury Inflation-Protected Securities or TIPS. Cash takes a considerable portion of the fund.
Demand for dividend ETFs normally remains high as they act as a great safety. Investors may be interested in equities or products that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.
Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. The fund focuses on stocks that are forecasted to have above-average dividend yields. Financials (20.7%), Health Care (14.3%) and Consumer Staples (12.3%) hold the top three spots in the fund. The fund charges 6 bps in fees and yields 2.96% annually.
As the U.S. economic growth rate is not expected to log any meaningful deceleration in the near term, equity ETFs can be played. Investors should note that value stocks perform better in a rising rate environment than growth stocks. Hence, SPYV should come across as an interesting pick.
The fund is heavy on Financials (20.3%), Information Technology (16.96%), Industrials (12.15%) and Consumer Discretionary (10.89%). Microsoft (4.92%), Berkshire Hathaway (3.38%) and Amazon.com (2.84%) hold the top three spots in the fund. The 407-stock fund charges 4 bps in fees.
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'No Landing' Scenario Likely to Boost These ETFs
Bank of America’s chief economist Michael Hartnett recently predicted a "no landing" scenario in the first half of the year, as quoted on Fox Business. “No Landing” scenario means where there is no prompt slowdown in growth but inflation remains above trend.
This, in turn, will give the Fed a leeway to act freely on the monetary policy tightening issue and keep rates higher for longer. Hartnett projected the S&P 500 could slip nearly 7% by early March due to this scenario.
The continuation of the Fed's aggressive policy tightening likely means that a "hard landing" scenario — in which the economy falls into a recession — will happen in the latter part of 2023, he said, per the abovementioned source.
Federal Reserve policymakers voted to raise interest rates eight consecutive times to a range of 4.5% to 4.75%, and hinted last month that a "couple more" increases are on the table this year. However, a host of hotter-than-expected economic data points almost confirmed the omnipresence of high consumer prices, has raised the threat of a higher peak rate.
While the expected scenario of hard-landing is not confirmed yet, investors should be prepared for any kind of “no landing” phases. This means higher inflation, decent economic growth and higher rates. Against this backdrop, below-mentioned ETFs could be great picks.
ETFs in Focus
Advocate Rising Rate Hedge ETF
As rates will likely to remain higher for longer, ETFs to fight rising rates are good bets. The Advocate Rising Rate Hedge ETF is a multi-asset ETF that seeks to generate capital appreciation during periods of rising long term interest rates, specifically interest rates with maturities of five years or longer.
The fund primarily invests in a combination of: U.S. Treasury securities; money-market funds; forwards, futures or options on various currencies; long and short positions on the short and long-end of the Treasury or swap yield curve via futures, swaps, forwards and other over-the-counter derivatives; long and short positions on equity indexes and/or sector ETFs; and commodity futures and options. The fund charges 85 bps in fees.
Ionic Inflation Protection ETF (CPII - Free Report)
ETFs to inflation would be other great tools. The Ionic Inflation Protection ETF is an actively-managed ETF, which looks to generate positive returns during periods of rising inflation and inflation expectations as well as during periods of increasing long-term interest rates and fixed income volatility.
The fund invests primarily in a portfolio of inflation swap agreements on the Consumer Price Index, interest rate swaps, swaptions and U.S. Treasury Obligations including U.S. Treasury Inflation-Protected Securities or TIPS. Cash takes a considerable portion of the fund.
Vanguard High Dividend Yield ETF (VYM - Free Report)
Demand for dividend ETFs normally remains high as they act as a great safety. Investors may be interested in equities or products that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.
Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. The fund focuses on stocks that are forecasted to have above-average dividend yields. Financials (20.7%), Health Care (14.3%) and Consumer Staples (12.3%) hold the top three spots in the fund. The fund charges 6 bps in fees and yields 2.96% annually.
SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report)
As the U.S. economic growth rate is not expected to log any meaningful deceleration in the near term, equity ETFs can be played. Investors should note that value stocks perform better in a rising rate environment than growth stocks. Hence, SPYV should come across as an interesting pick.
The fund is heavy on Financials (20.3%), Information Technology (16.96%), Industrials (12.15%) and Consumer Discretionary (10.89%). Microsoft (4.92%), Berkshire Hathaway (3.38%) and Amazon.com (2.84%) hold the top three spots in the fund. The 407-stock fund charges 4 bps in fees.