Invest in Quality ETFs to Fight Volatility – Zacks Investment Research | Jewelry Dukan

After a good start to the third quarter, Wall Street found itself on another volatile ride as fears of an aggressive Fed rate hike and global growth concerns resurfaced (read: Inverse ETFs Rally On Stocks’ Worst Drop Since June 2020) .

Against this background, investors should focus on high-quality investments. Quality stocks are rich in value attributes with a healthy balance sheet, high return on investments, low volatility, elevated margins, and a trace of stable or increasing sales and earnings growth. These products thus reduce volatility compared to plain vanilla funds and withstand market fluctuations quite well. In addition, academic research shows that high-quality companies consistently generate higher risk-adjusted returns than the broader market over the long term.

With that in mind, we’ve highlighted five ETFs that target this niche strategy. iShares Edge MSCI USA Quality Factor ETF (QUALITY free report) Invesco S&P 500 quality ETF (SPHQ free report) ALPS Barron’s 400 ETF (BFOR free report) FlexShares Quality Dividend Index Fund (QDF Free report) and SPDR MSCI USA Strategic Factors ETF (QUS Free Report) could trade smoothly and generate market-beating returns in the current market environment.

Current market trends

US stocks suffered their biggest bloodbath in two years this week after hotter-than-expected inflation data. The CPI rose 8.3% year-on-year in August, after an 8.5% rise in July but above the 8.1% increase analysts had expected. Inflation has also risen by 0.1% since July, daunting investor hopes that price pressures would ease and allow the Fed to slow the pace of rate hikes in the coming months benefit from unexpectedly high inflation).

The central bank is expected to hike interest rates by 75 basis points at the September 20-21 meeting to tame inflation. Jerome Powell recently said that the Fed must keep interest rates high enough to slow the economy “for some time” to curb high inflation. While tight monetary policy will bring inflation down from its 40-year high “for some time” it means slower growth, a weaker labor market and “some pain” for households and businesses.

The higher-than-expected inflation report could prompt the Fed to continue its aggressive rate hikes for longer than expected. Wall Street’s big fear is that higher interest rates will eventually lead to an economic slowdown or even a recession.

Blasts of weak economic data around the world also added to fears of a global slowdown. US mortgage rates topped 6% for the first time since 2008, suggesting the hot housing market is cooling off quickly. Meanwhile, economic activity in China, the world’s second largest economy, is slowing and the real estate sector is also suffering. Eurozone inflation also rose to another record high in August.

iShares Edge MSCI USA Quality Factor ETF (QUALITY free report)

With $19.3 billion in assets under management, the iShares Edge MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks with positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by it tracks the MSCI USA sector Neutral quality index. It holds 125 stocks in its basket, each accounting for no more than 4.4%.

The iShares Edge MSCI USA Quality Factor ETF charges 15 basis points in annual fees and trades an average daily volume of 1.1 million shares.

Invesco S&P 500 Quality ETF (SPHQ free report)

The Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark for S&P 500 stocks that have the highest quality score based on three fundamental metrics – return on equity, accruals ratio and financial debt ratio.

With 102 stocks in its basket, the Invesco S&P 500 Quality ETF has amassed $3.6 billion in assets and trades an average daily volume of 684,000 shares. There are 15 bps in fees per year.

ALPS Barron’s 400 ETF (BFOR free report)

With $133.4 million in assets under management, the ALPS Barron’s 400 ETF tracks the Barron’s 400 Index, which offers investors exposure to the high-performing securities of US companies. It uses MarketGrader’s fundamental analysis to select stocks based on the strength of their fundamentals related to growth, value, profitability, and cash flow, and then sifts through these components based on specific criteria related to concentration, market capitalization, and liquidity.

ALPS Barron’s 400 ETF holds 400 stocks in its basket, with none accounting for more than 0.55% of assets. It charges 65 bps in annual fees and trades an average volume of 3,000 shares per day.

FlexShares Quality Dividend Index Fund (QDF free report)

The FlexShares Quality Dividend Index Fund follows the Northern Trust Quality Dividend Index, maximizing exposure to quality and dividends while maintaining a beta close to 1. He has 130 stocks in his basket, with none accounting for more than 8.8% of assets (read: IMF lowers global growth forecast: ETF strategies to win).

The FlexShares Quality Dividend Index Fund has amassed $1.6 billion in assets while trading an average daily volume of 61,000 shares. It charges investors 37 basis points per year.

SPDR MSCI USA StrategicFactors ETF (QUS free report)

The SPDR MSCI USA StrategicFactors ETF provides exposure to stocks that exhibit a combination of low volatility, quality and value factor strategies. It does this by tracking the MSCI USA Factor Mix A-Series Capped Index. The SPDR MSCI USA StrategicFactors ETF has 628 stocks in its basket, each accounting for less than 3.3% of the stock.

The SPDR MSCI USA StrategicFactors ETF has accumulated $892.6 million in assets while trading an average daily volume of 33,000 shares. It charges investors 15 basis points per year.

bottom line

Quality ETFs often offer a hedge against market volatility. Adding any of the above products to the long-term portfolio could be a good move given their credit standing.

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