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Wall Street has been on a wild ride in recent months, with the S&P 500 and Nasdaq posting their biggest monthly percentage drops of the year in September. For the third quarter, the S&P 500 fell about 3.6%, the Dow lost 2.6% and the Nasdaq shed 4.1%. The weak trend is likely to continue in the fourth quarter as well. The prospect of a sustained period of higher rates and a weak China economy are taking a toll on investors’ sentiment.
This is especially true as the expectation for longer rates has pushed yields higher. Notably, the 10-year Treasury yield scaled to 4.84%, the highest level since August 2007 early this month while 30-year yields touched 5% for the first time since 2007. The Fed, in its latest meeting, kept interest rates steady at a 22-year high, in the range of 5.25% to 5.5%, but signaled one more hike this year. Though inflation is easing, it remains elevated and above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure.
Meanwhile, China, the engine of global growth, is caught in deep trouble, given falling consumer prices, a deepening real estate crisis, slumping exports and a record-high youth unemployment rate.
Given the current market environment, we have highlighted some investing strategies that could prove to be extremely beneficial for investors:
Hedge Higher Rates
The increase in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house, increased the cost of carrying credit card debt and thus slowed down economic growth. Investors should flock to interest rate hedge ETFs to protect themselves from the higher rate environment. Some of these include Advocate Rising Rate Hedge ETF , Simplify Interest Rate Hedge ETF (PFIX - Free Report) and Global X Interest Rate Hedge ETF (RATE - Free Report) (read: Best Performing ETFs of Q3 2023).
Add Value to Your Portfolio
Amid myriad woes, value investing seems appealing to investors. This is because value stocks, which have strong fundamentals — earnings, dividends, book value and cash flow — and trade below their intrinsic value, will likely benefit from growth in the economy and simultaneously from bouts of stock market volatility.
Value stocks seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. These are less susceptible to the trending markets and their dividend payouts offer safety in times of market turbulence. While most of the funds in the value space seem excellent choices, Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and iShares S&P 500 Value ETF (IVE - Free Report) have a Zacks ETF Rank #1 (Strong Buy).
Bet on Quality
Amid a still-hawkish Federal Reserve scenario, quality investing seems to be a solid bet. Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time.
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. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
Among the most popular are iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ) and Barron's 400 ETF (BFOR - Free Report) .
Focus on Low Volatility
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 with a higher distribution yield than the broader markets. ETFs like iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) and Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) could be compelling choices. These have a Zacks ETF Rank #3 (Hold) (read: Low Volatility ETFs to Outperform: Here's Why).
Emphasis on Dividends
Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis (read: High-Dividend ETFs: Winners Amid Fed's Higher-For-Longer Rate Cues).
In particular, ETFs with stocks having a strong history of dividend growth seem to be good picks. Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Core Dividend Growth ETF (DGRO - Free Report) have a Zacks ETF Rank #1.
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5 Winning ETF Strategies for Q4
Wall Street has been on a wild ride in recent months, with the S&P 500 and Nasdaq posting their biggest monthly percentage drops of the year in September. For the third quarter, the S&P 500 fell about 3.6%, the Dow lost 2.6% and the Nasdaq shed 4.1%. The weak trend is likely to continue in the fourth quarter as well. The prospect of a sustained period of higher rates and a weak China economy are taking a toll on investors’ sentiment.
This is especially true as the expectation for longer rates has pushed yields higher. Notably, the 10-year Treasury yield scaled to 4.84%, the highest level since August 2007 early this month while 30-year yields touched 5% for the first time since 2007. The Fed, in its latest meeting, kept interest rates steady at a 22-year high, in the range of 5.25% to 5.5%, but signaled one more hike this year. Though inflation is easing, it remains elevated and above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure.
Meanwhile, China, the engine of global growth, is caught in deep trouble, given falling consumer prices, a deepening real estate crisis, slumping exports and a record-high youth unemployment rate.
Given the current market environment, we have highlighted some investing strategies that could prove to be extremely beneficial for investors:
Hedge Higher Rates
The increase in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house, increased the cost of carrying credit card debt and thus slowed down economic growth. Investors should flock to interest rate hedge ETFs to protect themselves from the higher rate environment. Some of these include Advocate Rising Rate Hedge ETF , Simplify Interest Rate Hedge ETF (PFIX - Free Report) and Global X Interest Rate Hedge ETF (RATE - Free Report) (read: Best Performing ETFs of Q3 2023).
Add Value to Your Portfolio
Amid myriad woes, value investing seems appealing to investors. This is because value stocks, which have strong fundamentals — earnings, dividends, book value and cash flow — and trade below their intrinsic value, will likely benefit from growth in the economy and simultaneously from bouts of stock market volatility.
Value stocks seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. These are less susceptible to the trending markets and their dividend payouts offer safety in times of market turbulence. While most of the funds in the value space seem excellent choices, Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and iShares S&P 500 Value ETF (IVE - Free Report) have a Zacks ETF Rank #1 (Strong Buy).
Bet on Quality
Amid a still-hawkish Federal Reserve scenario, quality investing seems to be a solid bet. Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time.
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. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
Among the most popular are iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ) and Barron's 400 ETF (BFOR - Free Report) .
Focus on Low Volatility
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 with a higher distribution yield than the broader markets. ETFs like iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) and Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) could be compelling choices. These have a Zacks ETF Rank #3 (Hold) (read: Low Volatility ETFs to Outperform: Here's Why).
Emphasis on Dividends
Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis (read: High-Dividend ETFs: Winners Amid Fed's Higher-For-Longer Rate Cues).
In particular, ETFs with stocks having a strong history of dividend growth seem to be good picks. Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Core Dividend Growth ETF (DGRO - Free Report) have a Zacks ETF Rank #1.