After an encouraging month of March, market participants are facing turbulent market conditions. Several factors have been adding to market uncertainties for some time. The Russian-Ukrainian war saga is seeing new twists as the Federal Reserve has taken a more aggressive stance in controlling high inflation numbers. Market participants are eagerly awaiting the first quarter earnings season.
Investors keen to navigate the current market turmoil may consider iShares MSCI USA Quality Factor ETF (QUAL), Invesco S&P 500 Quality ETF (SPHQ), FlexShares Quality Dividend Index Fund (QDF), SPDR MSCI USA ETF StrategicFactors (QUS) and Barron’s 400 ETF (BFOR).
Russia is already facing rage and condemnation from world leaders for atrocities committed against Ukrainians, labeled as “war crimes”. After seeing the footage of Bucha in northwest Kyiv, some world leaders floated the idea of imposing more sanctions on Russia. The Russian missile strike on a railway station serving as an evacuation hub in the eastern city of Kramatorsk is once again condemned by world leaders (according to a CNN report).
Japanese Prime Minister Fumio Kishida recently informed that he would increase his sanctions against Russia, banning Russian imports like coal and vodka. The country will also freeze the assets of major banks, such as Alphabank and Sberbank, according to a CNN report. UN member states voted against Russia to suspend it from the Human Rights Council in response to allegations of atrocities against Ukrainians by Russian soldiers.
The resurgence of COVID-19 cases in China has led to a lockdown in Shanghai, the country’s main financial hub, in line with its zero-COVID policy.
As the turmoil continues, rising commodity prices and fears of further disruptions in global supply chain distribution could fuel higher inflation. Additionally, while the Federal Reserve has taken an aggressive approach to raising rates, market participants are concerned that the US economy is slipping into stagflation due to high interest rates and high inflation.
The minutes of the March FOMC meeting, recently released, highlighted the central bank’s plans to control inflation levels through larger interest rate hikes. The same also described the method and extent of the balance sheet reduction which holds approximately $9 trillion in assets. Federal Reserve officials have decided to reduce their balance sheet by about $95 billion a month.
Investors are also scared of recessionary signals coming from the bond market as the 2-year and 10-year Treasury yield curve inverts for the first time since 2019.
The core Personal Consumption Expenditure (PCE) price index rose 5.4% year over year, posting the biggest jump in about 40 years (according to a CNBC article). The Federal Reserve considers this measure to be the most reliable indicator of inflation. The index fell below the Dow Jones estimate of 5.5%.
Quality ETFs worth checking out
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and healthy margins. These stocks also have a track record of stable or rising sales and earnings growth. Compared to traditional funds, these products help reduce volatility and perform quite well during market uncertainties. Additionally, academic research has proven that high-quality companies consistently offer better risk-adjusted returns than the general market over the long term.
In such a context, we have highlighted five ETFs targeting this niche strategy. These could enjoy smooth trading and generate above-market returns in the current market scenario.
iShares MSCI USA Quality Factor ETF QUAL
iShares 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 tracking the MSCI index USA Sector Neutral Quality Index (read: Tap These 5 ETFs as Recession Fears Wall Street).
Expense ratio: 0.15%
Assets under management: $22.87 billion
Invesco S&P 500 Quality ETF SPHQ
Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks with the highest quality score based on three fundamental measures, namely return on equity, accrual ratio and financial leverage ratio.
Expense ratio: 0.15%
Assets under management: $3.88 billion
FlexShares Quality Dividend Index Fund QDF
The FlexShares Quality Dividend Index Fund seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Index.
Expense ratio: 0.37%
Assets under management: $1.71 billion
SPDR MSCI USA ETF StrategicFactors QUS
The SPDR MSCI USA StrategicFactors ETF provides exposure to stocks that combine value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Capped Index (Read: Best ETF Investment Strategies for Q2 2022)
Expense ratio: 0.15%
AUM: $950 million
Barron’s 400 ETF EPBF
The Barron’s 400 ETF seeks investment results that generally correspond, before fees and expenses, to the performance of the Barron’s 400 Index.
Total operating expenses: 0.65%
AUM: $140.9 million
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iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
FlexShares Quality Dividend ETF (QDF): ETF Research Reports
Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports
BARRONS400 ETF (BFOR): ETF Research Reports
ETF SPDR MSCI USA StrategicFactors (QUS): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.