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Market Collapsing: 5 Strategies for a Winning ETF Portfolio
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After hitting a peak in mid-February, the global stock market has been hit a blow by the fast-spreading coronavirus pandemic. In fact, the disease has pushed the U.S. stock market into a bear territory from a record high at the fastest pace on record.
Notably, the Dow Jones Industrial Average and the S&P 500 have plunged more than 30% in a month. According to analysis by The Independent, one of the main U.S. equity market indexes has fallen more rapidly than during the Wall Street Crash of 1929 in the past month.
COVID-19 has taken a toll on economic activities worldwide, leading to suspension of professional sports games, cancelation of major events, conferences and conventions, prohibition of mass gatherings, travel bans and half-empty restaurants. Lockdowns are likely to be implemented in many nations in the days ahead to control the contagion (read: Coronavirus Panic to Send Economy Into Recession: ETF Picks).
Amid mass closures of private businesses, soaring layoffs and school shutdowns, market participants forecast global recession in the coming quarters. Even a slew of stimulus measures by the government and the central banks globally failed to revive investors’ confidence in the economy and the stock market. The relentless slide is expected to continue at least in the near term.
Against such a backdrop, it is difficult to plan investments that could fetch sure-shot returns. In this case, they should focus on certain techniques or strategies while building a portfolio that are sure to pay off in the coming months. We share some of these with you:
Prepare for Higher Volatility
As coronavirus cases are showing no signs of slowdown worldwide, volatility will continue to rise. As such, investors should focus on low-volatility ETFs. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. 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: Do Low Volatility ETFs Outperform During Market Turmoil?).
Focus on Quality
Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These stocks thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Some of the funds in this category, MSCI USA Quality Factor ETF (QUAL - Free Report) , PowerShares S&P 500 High Quality ETF (SPHQ - Free Report) and Barrons 400 ETF (BFOR - Free Report) are worth a look (read: Here's Why You Should Bet on Quality ETFs & Stocks).
Add Value to Your Portfolio
Value ETFs have proven to be outperformers over the long term and are less susceptible to trending markets. This is because value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. As such, value ETFs have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts. Among these, iShares S&P 500 Value ETF (IVE - Free Report) , SPDR Portfolio S&P 500 Value ETF (SPYD - Free Report) and Schwab U.S. Large-Cap Value ETF (SCHV - Free Report) have a Zacks ETF Rank #2 (Buy).
Emphasis on Dividends
Though dividend-focused stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. These are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
As such, dividend-focused ETFs offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. While there are several dividend ETFs, investing in high-yield products in this corner could earn higher returns amid turbulent times. Here are some of the top-ranked, high-yielding products — Vanguard High Dividend Yield ETF (VYM - Free Report) , iShares Core High Dividend ETF (HDV - Free Report) and SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) . Each has a Zacks ETF Rank #3 (read: Guide to 10 Most Popular Dividend ETFs).
Hedge Against Volatility
In the backdrop of feeble fundamentals, investors should apply some hedging techniques to their equity portfolio. The volatility-hedged ETFs that prove beneficial amid market uncertainty. Investors should note that these funds have the potential to stand out and outperform the simple vanilla funds in case of rising volatility. The most popular of these are DeltaShares S&P 500 Managed Risk ETF , Innovator S&P 500 Power Buffer ETF POCT and Nationwide Risk-Based U.S. Equity ETF .
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Market Collapsing: 5 Strategies for a Winning ETF Portfolio
After hitting a peak in mid-February, the global stock market has been hit a blow by the fast-spreading coronavirus pandemic. In fact, the disease has pushed the U.S. stock market into a bear territory from a record high at the fastest pace on record.
Notably, the Dow Jones Industrial Average and the S&P 500 have plunged more than 30% in a month. According to analysis by The Independent, one of the main U.S. equity market indexes has fallen more rapidly than during the Wall Street Crash of 1929 in the past month.
COVID-19 has taken a toll on economic activities worldwide, leading to suspension of professional sports games, cancelation of major events, conferences and conventions, prohibition of mass gatherings, travel bans and half-empty restaurants. Lockdowns are likely to be implemented in many nations in the days ahead to control the contagion (read: Coronavirus Panic to Send Economy Into Recession: ETF Picks).
Amid mass closures of private businesses, soaring layoffs and school shutdowns, market participants forecast global recession in the coming quarters. Even a slew of stimulus measures by the government and the central banks globally failed to revive investors’ confidence in the economy and the stock market. The relentless slide is expected to continue at least in the near term.
Against such a backdrop, it is difficult to plan investments that could fetch sure-shot returns. In this case, they should focus on certain techniques or strategies while building a portfolio that are sure to pay off in the coming months. We share some of these with you:
Prepare for Higher Volatility
As coronavirus cases are showing no signs of slowdown worldwide, volatility will continue to rise. As such, investors should focus on low-volatility ETFs. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. 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: Do Low Volatility ETFs Outperform During Market Turmoil?).
Focus on Quality
Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These stocks thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Some of the funds in this category, MSCI USA Quality Factor ETF (QUAL - Free Report) , PowerShares S&P 500 High Quality ETF (SPHQ - Free Report) and Barrons 400 ETF (BFOR - Free Report) are worth a look (read: Here's Why You Should Bet on Quality ETFs & Stocks).
Add Value to Your Portfolio
Value ETFs have proven to be outperformers over the long term and are less susceptible to trending markets. This is because value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. As such, value ETFs have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts. Among these, iShares S&P 500 Value ETF (IVE - Free Report) , SPDR Portfolio S&P 500 Value ETF (SPYD - Free Report) and Schwab U.S. Large-Cap Value ETF (SCHV - Free Report) have a Zacks ETF Rank #2 (Buy).
Emphasis on Dividends
Though dividend-focused stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. These are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
As such, dividend-focused ETFs offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. While there are several dividend ETFs, investing in high-yield products in this corner could earn higher returns amid turbulent times. Here are some of the top-ranked, high-yielding products — Vanguard High Dividend Yield ETF (VYM - Free Report) , iShares Core High Dividend ETF (HDV - Free Report) and SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) . Each has a Zacks ETF Rank #3 (read: Guide to 10 Most Popular Dividend ETFs).
Hedge Against Volatility
In the backdrop of feeble fundamentals, investors should apply some hedging techniques to their equity portfolio. The volatility-hedged ETFs that prove beneficial amid market uncertainty. Investors should note that these funds have the potential to stand out and outperform the simple vanilla funds in case of rising volatility. The most popular of these are DeltaShares S&P 500 Managed Risk ETF , Innovator S&P 500 Power Buffer ETF POCT and Nationwide Risk-Based U.S. Equity ETF .
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>