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6 Healthy ETFs Amid Coronavirus-Hit Economy

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On World Health Day, we would like to draw investors’ attention to some ETFs that can make their portfolio immune to the effects of the coronavirus crisis, which has resulted in lockdowns and forced people to stay indoors. This situation is weighing heavily on economic growth and business activity (read: ETFs Set to Benefit from Social Distancing, Stay-At-Home).

Layoffs and jobless claims have risen unprecedentedly with businesses scaling back or temporarily shutting down their operations. Spending — the engine of the U.S. economy — has collapsed. Revenues of restaurants, hotels, movie theaters, gyms, and airlines have been badly hit with many of them on the brink of bankruptcy.

Like the six nutrients required for good health, we have highlighted an ETF each from six categories that could be good investments amid the ongoing turmoil:

Quality

Quality ETFs are generally rich in value characteristics as these focus on stocks with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. This approach advocates investments in safer stocks and reduces volatility when compared with plain vanilla funds. Academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term.

While there are several quality ETFs available in the space, iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) is the most popular. This fund provides exposure to stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. It holds 125 securities in its basket. Information technology holds 24.5% while healthcare, financials and communications round off the next three spots. The product has amassed $14.9 billion in its asset base and charges 15 bps in annual fees from investors. Average trading volume is solid at around 1.5 million shares per day.

Low Volatility

Low volatility products appear safe in a turbulent market. These reduce losses in declining markets while generating decent returns when markets rise. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these funds contain stocks of defensive sectors, which usually have a higher distribution yield than the broader markets.

In particular, the ultra-popular iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) , having AUM of $29.7 billion and average daily volume of about 5.5 million shares, tracks the MSCI USA Minimum Volatility (USD) Index. It offers exposure to 208 U.S. stocks having lower volatility characteristics than the broader U.S. equity market. Information technology, financials, consumer staples and healthcare are the top four sectors accounting for a double-digit allocation each. The product charges 15 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) (read: Lower Risk in Your Portfolio with These ETFs).

Diversification

Designing a diversified investment portfolio involves the inclusion of stocks of different companies, securities and industries in order to minimize risks and achieve optimal risk-adjusted returns. While there are several ETFs that offer diversification benefits, Invesco S&P 500 Equal Weight ETF (RSP - Free Report) could be an interesting choice, as it offers almost equal allocation of the stocks of the S&P 500 Index.

The fund tracks the S&P Equal Weight Index, which equally weights the stocks in the S&P 500 Index. Holding 507 stocks in its basket, information technology, healthcare, industrials, and financials are the top sectors with double-digit exposure each. The fund has amassed nearly $9.7 billion in its asset base and sees average daily volume of more than 890,000 shares. It charges 20 bps in fees per year from investors and has a Zacks ETF Rank #3.

Dividend

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. 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 several choices are available in the dividend space, Vanguard Dividend Appreciation ETF (VIG - Free Report) looks attractive. This is the largest and most-popular ETF in the dividend space with AUM of $35.7 billion and average daily volume of about 1.8 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of growing dividend year over year. It holds 182 securities in the basket with industrials and consumer services making up the top two sectors. The fund charges 6 bps in annual fees and has a Zacks ETF Rank #2 (Buy) (read: Play These Dividend Growth ETFs to Combat Coronavirus).

Blend

Blend funds consist of a mix of both growth and value stocks, and are considered most suitable in any type of market. This is because these funds harness their momentum in earnings to create a positive bias in the market, resulting in improved share prices. At the same time, these tap buying opportunities at depressed stock prices hoping for capital appreciation when the stock finally reflects its true market price.

In particular, Vanguard S&P 500 ETF (VOO - Free Report) having a Zacks ETF Rank #2 will be a lucrative choice. The ETF offers exposure to a broad basket of 508 U.S. stocks by tracking the S&P 500 Index. About 24.4% of the portfolio is dominated by information technology while health care, financials, and communication services round off the next three spots with a double-digit allocation each. VOO has AUM of $114.4 billion and trades in average daily volume of around 4.9 million shares. It charges 3 bps in annual fees (read: Q1 ETF Asset Report: What's Hot, What's Not).

Hedge Volatility

Volatility-hedged ETFs could prove beneficial amid market uncertainty. These funds have the potential to stand out and outperform the simple vanilla funds in case of rising volatility. DeltaShares S&P 500 Managed Risk ETF (DMRL - Free Report) is the most popular in this category.

This ETF seeks to track the S&P 500 Managed Risk 2.0 Index, which is designed to simulate a downside-protected portfolio by utilizing a framework that includes targeted volatility and a synthetic option overlay to hedge the downside risk of the portfolio. DMRL has accumulated nearly $382.3 million in its asset base and trades in light volume of 5,000 shares. It charges 35 bps in fees per year (read: Market Collapsing: 5 Strategies for a Winning ETF Portfolio).    

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