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Look for High-Quality ETFs if Slowdown Worries Mount
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Most global stocks are experiencing declines due to the global economic downturn, mirroring the situation in China's domestic markets. China's manufacturing sector shows signs of weakness, and concerns about corporate earnings and commodity demand arise. The latest purchasing managers' index reveals a significant slowdown since December.
Uneven Recovery Worries Investors: Corporate Earnings at Risk
China's recovery from the economic downturn has been uneven, leading to concerns about the outlook for corporate earnings, especially in Europe. Notably, China is a major trading partner of Germany.
Commodities Hit: China's Demand for Metals Declines
China's slowing manufacturing has resulted in reduced demand for commodities like copper and iron ore. With Latin America boasting a large reserve of industrial metals, Chinese slowdown will affecet the Latin American growth too. As a result, prices have dropped, affecting the global commodities market.
Fed’s Stance: Inflation and Interest Rates in Focus
Meanwhile, Federal Reserve officials hold varying views on inflation and interest rates. Some express concerns about inflation and cooling demand, while others see no reason to pause interest-rate increases. If the Fed continues to hike rates, a U.S. recession is likely ahead. U.S. recession possible in the fourth quarter after ‘zigzag’ deceleration, per a strategist, quoted on CNBC.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
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 expected dividend payment and fundamental factors. The fund yields 2.28% annually and charges 37 bps in fees.
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 15 bps in fees and yields 1.75% annually.
The underlying MSCI USA Sector Neutral Quality Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid-capitalization stocks. The fund charges 15 bps in fees and yields 1.40% annually.
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Look for High-Quality ETFs if Slowdown Worries Mount
Most global stocks are experiencing declines due to the global economic downturn, mirroring the situation in China's domestic markets. China's manufacturing sector shows signs of weakness, and concerns about corporate earnings and commodity demand arise. The latest purchasing managers' index reveals a significant slowdown since December.
Uneven Recovery Worries Investors: Corporate Earnings at Risk
China's recovery from the economic downturn has been uneven, leading to concerns about the outlook for corporate earnings, especially in Europe. Notably, China is a major trading partner of Germany.
Commodities Hit: China's Demand for Metals Declines
China's slowing manufacturing has resulted in reduced demand for commodities like copper and iron ore. With Latin America boasting a large reserve of industrial metals, Chinese slowdown will affecet the Latin American growth too. As a result, prices have dropped, affecting the global commodities market.
Fed’s Stance: Inflation and Interest Rates in Focus
Meanwhile, Federal Reserve officials hold varying views on inflation and interest rates. Some express concerns about inflation and cooling demand, while others see no reason to pause interest-rate increases. If the Fed continues to hike rates, a U.S. recession is likely ahead. U.S. recession possible in the fourth quarter after ‘zigzag’ deceleration, per a strategist, quoted on CNBC.
Why Quality Investing?
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.
ETFs in Focus
FlexShares Quality Dividend ETF (QDF - Free Report)
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 expected dividend payment and fundamental factors. The fund yields 2.28% annually and charges 37 bps in fees.
Invesco S&P 500 Quality ETF (SPHQ - Free Report)
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 15 bps in fees and yields 1.75% annually.
iShares MSCI USA Quality Factor ETF (QUAL - Free Report)
The underlying MSCI USA Sector Neutral Quality Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid-capitalization stocks. The fund charges 15 bps in fees and yields 1.40% annually.