January was pretty volatile for the global markets, thanks to Middle-East tensions and the rapid spread of coronavirus, mainly in China. Now at the start of February, coronavirus cases are rising at an alarming rate. Still, Wall Street has been staging occasional rallies due to the signing of trade deals and a vortex of global police easing (read: Worst-Performing EM ETFs of January).
But the global economic impact of coronavirus is likely to be pronounced in the near term. At least, big investment houses believe so. Citigroup Inc. strategists cautioned about “substantive” complacency in financial markets which is causing such rallies. Investors should note forget that the impact of the coronavirus is still unclear.
But it is quite understandable that what’s been happening now will be reflected on the Q1 earnings numbers. Starting from car to aerospace, tourism, retail and entertainment, all industries are likely to suffer as China has been facing travel restrictions from many countries. And several cities in the country are under lockdown. A number of factories have also been shut down as well.
JPMorgan sees a considerable chance of “an unexpected re-acceleration of new coronavirus cases as factories reopen in China and more people come into contact with each other.” If the factories do not reopen, the economic impact would then be more severe. Citigroup’s chief equity strategist indicated that the flattening yield curve hints at more volatility ahead, which is usually accompanied by “equity market wobbles” (read: Buy These ETFs if U.S. Yield Curve Flattens Further).
“With a 3,375-year-end projection for the S&P 500 and the index only about 1%-2% away from that level,” Citigroup does not see a compelling good risk/reward set-up at the current level. Against this backdrop, investors can seek safety in quality products, which are undervalued and have relatively lesser correlation with the broader market (read: Beyond Coronavirus, What's Driving Gold ETFs?).
ETFs to Buy
Here we highlight a few ETFs that have a Zacks Rank #1 (Strong Buy) or 2 (Buy), a P/E (36 months) ratio of less than S&P 500’s P/E and beta below one.
Invesco Dynamic Large Cap Value ETF (PWV - Free Report) – P/E: 12.59x; Beta: 0.97
The underlying Dynamic Large Cap Value Intellidex Index is designed to provide capital appreciation while maintaining stylistically accurate exposure. The fund has a Zacks Rank #2. It yields 2.27% annually compared with the benchmark U.S. treasury yield of 1.66% (as on Feb 5, 2020).
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) – P/E: 14.58x; Beta: 0.85
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The Zacks Rank #2 fund yields 4.51% annually.
iShares Edge MSCI Multifactor Global ETF (ACWF - Free Report) – P/E: 14.59x; Beta: 0.99
The underlying MSCI ACWI Diversified Multi-Factor Index is designed to select equity securities from MSCI ACWI Index that have high exposure to four investment style factors: value, quality, momentum and size, while maintaining a level of risk similar to that of the Parent Index. The Zacks Rank #2 fund yields 2.42% annually.
SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report) – P/E: 17.02x; Beta: 0.93
The underlying Russell 1000 Low Volatility Focused Factor Index reflects the performance of a segment of large-capitalization U.S. equity securities demonstrating a combination of core factors — high value, high quality, and low size characteristics, with a focus factor comprising low volatility characteristics. The Zacks Rank #2 fund yields 2.07% annually (read: Low-Risk ETFs to Buy Amid Trade Volatility).
SPDR MSCI World StrategicFactors ETF (QWLD - Free Report) – P/E: 18.04x; Beta: 0.77
The underlying MSCI World Factor Mix A-Series Index captures large and mid-cap representation across 24 developed countries and aims to represent the performance of value, low volatility, and quality factor strategies. The Zacks Rank #2 fund yields 2.09% annually.
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