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After a sturdy run so far this year, Wall Street started to waver in mid-March, following the release of hot U.S. inflation data. Hot inflation readings for the first two months of 2024 aren’t going to prompt the Fed to lower rates quickly, per some market watchers. Hence, cues of higher-for-longer rates have weighed on the broader market this week.
The consumer price index, a broad measure of goods and services costs, rose 0.4% sequentially in February and 3.2% year over year. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.
Barring volatile food and energy prices, the core CPI ticked up 0.4% month over month and was up 3.8% year over year. Both were one-tenth of a percentage point higher than the forecast, per CNBC. If this was not enough, U.S. Treasury Secretary Janet Yellen said that it's “unlikely” that interest rates will return to the pre-pandemic levels.
No wonder the benchmark 10-year U.S. treasury yield jumped to 4.29% on Mar 14, 2024, from 4.09% recorded on Mar 8, 2024. The two-year U.S. treasury yield, too, jumped by 20 bps to 4.68% during this timeframe. The Fed is due to meet on Mar 20, 2024, and the rates are likely to remain the same this month.
At the current level, there is a 54.5% chance (down from 58.2% recorded a day ago) of a 25-bp rate cut in June, per the CME FedWatch Tool. Meanwhile, retail sales rose 0.6%, coming in short of estimates for a rise of 0.8% but still marking a rebound from a decline in January.
In commodities, the oil rally continued after the IEA warned that supply would lag this year and U.S. stockpiles fell. WTI crude futures traded just above $81 per barrel and touched their highest levels since November, while Brent crude futures rose to above $85. If oil prices remain steady, this will add to the already hot inflation print.
To add to the negative sentiments, U.S. household debt and delinquency rates have been rising. Total household debt increased by $212 billion to hit $17.5 trillion in the fourth quarter of 2023, according to data from the Federal Reserve Bank of New York.
The key selling season for homebuyers – Spring – may freeze out this year as higher mortgage rates, lack of affordability and higher home prices may retard would-be buyers from entering the housing market. Mortgage rates have largely been on the rise this year, peaking around 7% in mid-February.
Low-Risk ETFs to Play
Against this backdrop, below we highlight a few low-risk ETFs that could be tapped at the current level.
The Cambria Tail Risk ETF seeks to mitigate significant downside market risk. The fund intends to invest in a portfolio of out-of-the-money put options purchased in the U.S. stock market. The fund charges 59 bps in fees and yields 3.90% annually.
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. The expense ratio of the fund is 1.43% and the annual yield is 5.71%.
The underlying 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. The fund charges 30 bps in fees and yields 4.38% annually.
The underlying KFA MLM Index consists of a portfolio of 22 liquid futures contracts traded on U.S. and foreign exchanges. The fund charges 90 bps in fees.
The fund looks to provide positive absolute returns and income. The fund will invest in a diversified portfolio of third-party quantitative investment strategies across equities, interest rates, commodities, currencies, and credit. Each systematic strategy is designed to capture the proven market return premia.
By using a multi-strategy approach, Simplify looks to identify the optimal allocation among 10-20 strategies to achieve positive returns and mitigate asset-class and single-strategy risks. The expense ratio of the fund is 1.00% and the annual yield of the fund is 3.23%.
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5 Low-Risk ETFs to Play Now as Inflation Ticks Up
After a sturdy run so far this year, Wall Street started to waver in mid-March, following the release of hot U.S. inflation data. Hot inflation readings for the first two months of 2024 aren’t going to prompt the Fed to lower rates quickly, per some market watchers. Hence, cues of higher-for-longer rates have weighed on the broader market this week.
The consumer price index, a broad measure of goods and services costs, rose 0.4% sequentially in February and 3.2% year over year. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.
Barring volatile food and energy prices, the core CPI ticked up 0.4% month over month and was up 3.8% year over year. Both were one-tenth of a percentage point higher than the forecast, per CNBC. If this was not enough, U.S. Treasury Secretary Janet Yellen said that it's “unlikely” that interest rates will return to the pre-pandemic levels.
No wonder the benchmark 10-year U.S. treasury yield jumped to 4.29% on Mar 14, 2024, from 4.09% recorded on Mar 8, 2024. The two-year U.S. treasury yield, too, jumped by 20 bps to 4.68% during this timeframe. The Fed is due to meet on Mar 20, 2024, and the rates are likely to remain the same this month.
At the current level, there is a 54.5% chance (down from 58.2% recorded a day ago) of a 25-bp rate cut in June, per the CME FedWatch Tool. Meanwhile, retail sales rose 0.6%, coming in short of estimates for a rise of 0.8% but still marking a rebound from a decline in January.
In commodities, the oil rally continued after the IEA warned that supply would lag this year and U.S. stockpiles fell. WTI crude futures traded just above $81 per barrel and touched their highest levels since November, while Brent crude futures rose to above $85. If oil prices remain steady, this will add to the already hot inflation print.
To add to the negative sentiments, U.S. household debt and delinquency rates have been rising. Total household debt increased by $212 billion to hit $17.5 trillion in the fourth quarter of 2023, according to data from the Federal Reserve Bank of New York.
The key selling season for homebuyers – Spring – may freeze out this year as higher mortgage rates, lack of affordability and higher home prices may retard would-be buyers from entering the housing market. Mortgage rates have largely been on the rise this year, peaking around 7% in mid-February.
Low-Risk ETFs to Play
Against this backdrop, below we highlight a few low-risk ETFs that could be tapped at the current level.
Cambria Tail Risk ETF (TAIL - Free Report)
The Cambria Tail Risk ETF seeks to mitigate significant downside market risk. The fund intends to invest in a portfolio of out-of-the-money put options purchased in the U.S. stock market. The fund charges 59 bps in fees and yields 3.90% annually.
AGF U.S. Market Neutral Anti-Beta Fund (BTAL - Free Report)
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. The expense ratio of the fund is 1.43% and the annual yield is 5.71%.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
The underlying 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. The fund charges 30 bps in fees and yields 4.38% annually.
KFA Mount Lucas Managed Future (KMLM - Free Report)
The underlying KFA MLM Index consists of a portfolio of 22 liquid futures contracts traded on U.S. and foreign exchanges. The fund charges 90 bps in fees.
Simplify Multi-Qis Alternative ETF (QIS - Free Report)
The fund looks to provide positive absolute returns and income. The fund will invest in a diversified portfolio of third-party quantitative investment strategies across equities, interest rates, commodities, currencies, and credit. Each systematic strategy is designed to capture the proven market return premia.
By using a multi-strategy approach, Simplify looks to identify the optimal allocation among 10-20 strategies to achieve positive returns and mitigate asset-class and single-strategy risks. The expense ratio of the fund is 1.00% and the annual yield of the fund is 3.23%.