We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Wall Street saw wild swings last week with the return of volatility triggered by sooner-than-expected rate hike signals and higher inflation expectation. The Federal Reserve turned hawkish in its latest FOMC meeting, indicating two interest rate hikes by the end of 2023, sooner than previously expected.
Investors worried that if the Fed tightens monetary policy sooner than expected to help cool inflationary pressures this could weigh on future economic growth. This concern will continue to linger this year and thus led to a decline in stocks.
Additionally, it caused the flattening of the yield curve, which means that the yields of shorter-duration treasuries like the 2-year note increased while longer-duration yields like the benchmark 10-year declined. The retreat in long-dated bond yields reflects less optimism toward economic growth and the jump in short-end yields shows expectations of the Fed raising rates (read: Floating Rate ETFs Set to Surge on Rate Hike Bets).
As such, the Dow Jones plunged 3.5%, its consecutive second weekly fall and marks the worst week since October, while the S&P 500 shed 1.9% for the week, ending a three-week winning streak. The Nasdaq Composite Index saw a weekly loss of 0.3%, snapping its four-week rally. Meanwhile, the CBOE Volatility Index (VIX) jumped more than 32% last week. It implies that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels pertaining to the future are high.
Earlier-than-expected tightening has prompted investors to re-access their portfolio, leading to higher demand for lower-risk securities. As a result, we have highlighted four such zones and their popular ETFs where investors could stash their money amid this volatility:
Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
Low-volatility ETFs have the potential to outpace the broader market in an uncertain market environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to the defensive sectors that usually have a higher distribution yield than the broader markets.
While there are several options, USMV with AUM of $27.4 billion and an average daily volume of 3 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETF Strategies to Combat the FOMC June Meeting Worries).
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings.
With AUM of $21 billion, 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 and holds 125 stocks in its basket. The ETF charges 15 bps in annual fees and trades in an average daily volume of 911,000 shares.
Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.
This fund targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. It holds 338 stocks in its basket with AUM of $83.5 billion and charges 4 bps in annual fees. The ETF trades in volume of 2.8 million shares per day on average and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: A Quick Guide to the 25 Cheapest ETFs).
The dividend-paying securities are the major sources of consistent income for investors, when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth like VIG seem to be good picks. The ETF has AUM of $59.2 billion and trades in volume of 1.2 million shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
Bottom Line
These products could be worthwhile for low risk-tolerant investors and have the potential to outperform the broad market, especially if inflation fears and a sooner-than-expected tightening policy continue to dampen sentiments.
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 >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
4 ETF Zones to Invest in As Volatility Spikes
Wall Street saw wild swings last week with the return of volatility triggered by sooner-than-expected rate hike signals and higher inflation expectation. The Federal Reserve turned hawkish in its latest FOMC meeting, indicating two interest rate hikes by the end of 2023, sooner than previously expected.
Investors worried that if the Fed tightens monetary policy sooner than expected to help cool inflationary pressures this could weigh on future economic growth. This concern will continue to linger this year and thus led to a decline in stocks.
Additionally, it caused the flattening of the yield curve, which means that the yields of shorter-duration treasuries like the 2-year note increased while longer-duration yields like the benchmark 10-year declined. The retreat in long-dated bond yields reflects less optimism toward economic growth and the jump in short-end yields shows expectations of the Fed raising rates (read: Floating Rate ETFs Set to Surge on Rate Hike Bets).
As such, the Dow Jones plunged 3.5%, its consecutive second weekly fall and marks the worst week since October, while the S&P 500 shed 1.9% for the week, ending a three-week winning streak. The Nasdaq Composite Index saw a weekly loss of 0.3%, snapping its four-week rally. Meanwhile, the CBOE Volatility Index (VIX) jumped more than 32% last week. It implies that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels pertaining to the future are high.
Earlier-than-expected tightening has prompted investors to re-access their portfolio, leading to higher demand for lower-risk securities. As a result, we have highlighted four such zones and their popular ETFs where investors could stash their money amid this volatility:
Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
Low-volatility ETFs have the potential to outpace the broader market in an uncertain market environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to the defensive sectors that usually have a higher distribution yield than the broader markets.
While there are several options, USMV with AUM of $27.4 billion and an average daily volume of 3 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETF Strategies to Combat the FOMC June Meeting Worries).
Quality - iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report)
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings.
With AUM of $21 billion, 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 and holds 125 stocks in its basket. The ETF charges 15 bps in annual fees and trades in an average daily volume of 911,000 shares.
Value – Vanguard Value ETF (VTV - Free Report)
Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.
This fund targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. It holds 338 stocks in its basket with AUM of $83.5 billion and charges 4 bps in annual fees. The ETF trades in volume of 2.8 million shares per day on average and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: A Quick Guide to the 25 Cheapest ETFs).
Dividend - Vanguard Dividend Appreciation ETF (VIG - Free Report)
The dividend-paying securities are the major sources of consistent income for investors, when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth like VIG seem to be good picks. The ETF has AUM of $59.2 billion and trades in volume of 1.2 million shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
Bottom Line
These products could be worthwhile for low risk-tolerant investors and have the potential to outperform the broad market, especially if inflation fears and a sooner-than-expected tightening policy continue to dampen sentiments.
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 >>