As the U.S. Presidential elections are just around a month away, investors have started prepping their portfolios. In this regard, investors need to prepare for heightened volatility in the broader equities space.
This election year could be worse keeping in mind the aggravating coronavirus pandemic. Meanwhile, there is uncertainty regarding the introduction of a coronavirus vaccine. Going by sources, President Trump’s administration is believed to be building pressure on getting a vaccine approved before the elections in November. Meanwhile, the FDA has expressed intentions of not compromising with the vaccine’s quality, safety and efficacy standards when it comes to its decision of approval.
Also, according to some sources, the FDA is considering new coronavirus vaccine guidelines which can result in a vaccine authorization after Election Day. Meanwhile, Dr. Anthony Fauci, leading infectious disease expert, recently commented that a "large proportion" of the United States will not receive the vaccine in 2020, per a CNN report.
Going on, there are other factors as well which are causing increased volatility and market turbulences in September, which is historically considered the worst month for the stock market. The aggravating coronavirus outbreak has caught investors’ attention, making them increasingly apprehensive about another round of lockdowns. Investors are also concerned about the uncertainty surrounding additional U.S. fiscal stimulus package which shall be an absolute necessity for economic recovery. Furthermore, a report that showed global banks moved allegedly illicit funds over the past two decades also contributed to investors’ growing concerns and market sell-offs, according to a CNBC article.
ETFs to Fight the Volatility
Against this backdrop, investors can adopt the following ETF strategies:
Take Shelter in Minimum-Volatility ETFs
Low-volatility products could be intriguing choices for those who want to stay invested in equities during turbulent market conditions. The following options are intriguing:
iShares MSCI USA Min Vol Factor ETF USMV
This fund offers exposure to U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. With AUM of $33.13 billion, the product charges 0.15% in expense ratio (read: ETF Strategies to Fight the Rising Coronavirus Fears).
Invesco S&P 500 Low Volatility ETF SPLV
This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index. SPLV has amassed $8.54 billion in its asset base. It charges 25 bps in annual fees (read: Why Is This the Right Time to Invest in Low-Volatility ETFs?).
Invesco S&P 500 High Dividend Low Volatility ETF SPHD
The fund seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It has AUM of $2.27 billion and charges 30 bps in annual fees.
Add Strength With Quality ETFs
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and high margins. They also have a track record of stable or rising sales and earnings growth. In comparison to plain vanilla funds, these products help in lowering volatility and perform rather well during market uncertainty. Further, academic research has proven that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.
Given this, we have highlighted some ETFs targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market environment.
iShares MSCI USA Quality Factor ETF QUAL
This fund provides exposure to large and mid-cap 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. With AUM of $18.62 billion, the product charges 0.15% in expense ratio (read: Bypass the Market Rout With These Quality ETFs).
Invesco S&P 500 Quality ETF SPHQ
This fund tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks that have the highest quality score based on three fundamental measures — return on equity, accruals ratio and financial leverage ratio. SPHQ has amassed $2.14 billion in its asset base. It charges 15 bps in annual fees (read: Prepare for Volatility & Inflation with These ETFs).
FlexShares Quality Dividend Index Fund QDF
This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust (NASDAQ:NTRS) Quality Dividend Index. It has AUM of $1.27 billion and charges 37 bps in annual fees.
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iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
Invesco SP 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
Invesco SP 500 Quality ETF (SPHQ): ETF Research Reports
Invesco SP 500 Low Volatility ETF (SPLV): ETF Research Reports
iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
FlexShares Quality Dividend ETF (QDF): ETF Research Reports
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