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1970s-Style Stagflation in the Cards? ETF Strategies to Win
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The market is rife with high inflation risks and lower growth, meaning a stagflationary scenario for the most developed economies, including the United States. The World Bank cut its global growth forecast on Tuesday to 2.9% for 2022 and cautioned that a 1970s-style stagflation is round the corner.
The Federal Reserve has hiked rates twice so far this year, and many more are in the pipeline. At next week’s Federal Open Market Committee (FOMC) meeting, investors are anticipating the Fed to hike interest rates by an additional 50 basis points. In May, the Fed boosted rates by a half-percentage point — the biggest hike since 2000 — in order to tame surging inflation. In March, the hike was of 25 bps.
Such rate hikes are expected to rein in the GDP growth momentum. The Atlanta Federal Reserve’s GDPNow tracker is now hinting at an annualized gain of just 0.9% for the second quarter, down from an estimated 1.3% increase less than a week ago. If this happens, America will see negative growth in the first half of 2022, officially declaring recession by definition.
During stagflation, individuals’ savings accounts suffer as currency inflation cuts the value of their low-yield investments. Hence, one needs to resort to the stock market for inflation-beating gains. Against this backdrop, below, we highlight a few ETF strategies that could safeguard your portfolio.
Try Out Inflation-Beating Products
Dividend ETFs that offer current income more than the inflation rate could be an excellent choice. Invesco KBW High Dividend Yield Financial ETF (KBWD - Free Report) (yields 8.71%), Virtus WMC International Dividend ETF (VWID - Free Report) (yields 11.25% annually) and Global X Alternative Income ETF (ALTY) (yields 7.69% annually) are some of the ETFs that can be tried out in the current volatile market (mainly due to the Russia-Ukraine war). As far as financial ETFs are concerned, the Fed rate hikes should result in a rising rate environment and favor financial ETFs.
Plus, there are a lot of pure-play inflation-beating ETFs, namely, Merk Stagflation ETF (STGF), Harbor All-Weather Inflation Focus ETF (HGER) and Amplify Inflation Fighter ETF . Investors can always play these products.
High-Yielding Bond ETFs are Great Bets
At the maturity of bonds, investors receive the face value of the product. Meanwhile, products that offer inflation-beating current income could be great picks. FlexShares Credit-Scored U.S. Long Corporate Bond Index Fund (LKOR - Free Report) is an investment-grade high-yield bond ETF, which yields 6.12% annually.
Private Equity ETFs: Another Inflation-Beating Option
Private equity is a way of catering to the capital of high-net-worth entities. This group acquires rights in high-potential companies lacking cash strength. Along with providing finances, these private-equity firms provide the know-how to run the acquired business in the most profitable manner. Invesco Global Listed Private Equity ETF (PSP - Free Report) yields 14.01% annually. However, the fund is a risky bet in any kind of global market meltdown but fares better when the market is rallying.
Real Estate: A Winning Option
The sector is known for higher yield. With the homebuilding sector struggling with high prices, higher costs of raw materials and lower availability of land, many will look for rental options. Nationally, rents increased a record 11.3% last year, according to real estate research firm CoStar Group, as quoted on Washingtonpost. Such fast increment is in place even this year, as many parts of the country have continued to post double-digit increases in rent prices. Vanguard Real Estate ETF (VNQ) is thus a nice bet (read: Top Sector ETFs to Play Despite S&P 500's Still-Pricey Valuation).
Consumer Staples & Healthcare: Safe Options
The sector is enjoying a few benefits at this moment. Greater spending power in the wake of improving wage growth is helping the consumer segment. Moreover, the sector offers a decent dividend yield, which is needed to beat inflation. Moreover, even if there is stagflation in the U.S. economy, demand for staples like food will be constant. Hence, U.S. staples manufacturers are likely to be another safe bet to invest in. Consumer Staples Select Sector SPDR ETF (XLP - Free Report) yields about 2.35% annually. Health Care Select Sector SPDR ETF (XLV - Free Report) is another winning option as the sector’s demand is indispensable, irrespective of the economic condition.
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1970s-Style Stagflation in the Cards? ETF Strategies to Win
The market is rife with high inflation risks and lower growth, meaning a stagflationary scenario for the most developed economies, including the United States. The World Bank cut its global growth forecast on Tuesday to 2.9% for 2022 and cautioned that a 1970s-style stagflation is round the corner.
The Federal Reserve has hiked rates twice so far this year, and many more are in the pipeline. At next week’s Federal Open Market Committee (FOMC) meeting, investors are anticipating the Fed to hike interest rates by an additional 50 basis points. In May, the Fed boosted rates by a half-percentage point — the biggest hike since 2000 — in order to tame surging inflation. In March, the hike was of 25 bps.
Such rate hikes are expected to rein in the GDP growth momentum. The Atlanta Federal Reserve’s GDPNow tracker is now hinting at an annualized gain of just 0.9% for the second quarter, down from an estimated 1.3% increase less than a week ago. If this happens, America will see negative growth in the first half of 2022, officially declaring recession by definition.
During stagflation, individuals’ savings accounts suffer as currency inflation cuts the value of their low-yield investments. Hence, one needs to resort to the stock market for inflation-beating gains. Against this backdrop, below, we highlight a few ETF strategies that could safeguard your portfolio.
Try Out Inflation-Beating Products
Dividend ETFs that offer current income more than the inflation rate could be an excellent choice. Invesco KBW High Dividend Yield Financial ETF (KBWD - Free Report) (yields 8.71%), Virtus WMC International Dividend ETF (VWID - Free Report) (yields 11.25% annually) and Global X Alternative Income ETF (ALTY) (yields 7.69% annually) are some of the ETFs that can be tried out in the current volatile market (mainly due to the Russia-Ukraine war). As far as financial ETFs are concerned, the Fed rate hikes should result in a rising rate environment and favor financial ETFs.
Plus, there are a lot of pure-play inflation-beating ETFs, namely, Merk Stagflation ETF (STGF), Harbor All-Weather Inflation Focus ETF (HGER) and Amplify Inflation Fighter ETF . Investors can always play these products.
High-Yielding Bond ETFs are Great Bets
At the maturity of bonds, investors receive the face value of the product. Meanwhile, products that offer inflation-beating current income could be great picks. FlexShares Credit-Scored U.S. Long Corporate Bond Index Fund (LKOR - Free Report) is an investment-grade high-yield bond ETF, which yields 6.12% annually.
Private Equity ETFs: Another Inflation-Beating Option
Private equity is a way of catering to the capital of high-net-worth entities. This group acquires rights in high-potential companies lacking cash strength. Along with providing finances, these private-equity firms provide the know-how to run the acquired business in the most profitable manner. Invesco Global Listed Private Equity ETF (PSP - Free Report) yields 14.01% annually. However, the fund is a risky bet in any kind of global market meltdown but fares better when the market is rallying.
Real Estate: A Winning Option
The sector is known for higher yield. With the homebuilding sector struggling with high prices, higher costs of raw materials and lower availability of land, many will look for rental options. Nationally, rents increased a record 11.3% last year, according to real estate research firm CoStar Group, as quoted on Washingtonpost. Such fast increment is in place even this year, as many parts of the country have continued to post double-digit increases in rent prices. Vanguard Real Estate ETF (VNQ) is thus a nice bet (read: Top Sector ETFs to Play Despite S&P 500's Still-Pricey Valuation).
Consumer Staples & Healthcare: Safe Options
The sector is enjoying a few benefits at this moment. Greater spending power in the wake of improving wage growth is helping the consumer segment. Moreover, the sector offers a decent dividend yield, which is needed to beat inflation. Moreover, even if there is stagflation in the U.S. economy, demand for staples like food will be constant. Hence, U.S. staples manufacturers are likely to be another safe bet to invest in. Consumer Staples Select Sector SPDR ETF (XLP - Free Report) yields about 2.35% annually. Health Care Select Sector SPDR ETF (XLV - Free Report) is another winning option as the sector’s demand is indispensable, irrespective of the economic condition.