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5 ETF Strategies to Follow Amid the Current Market Turmoil
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The U.S. stock market has been witnessing a huge sell-off in recent weeks on recession fears, making investors jittery. Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession, given rising unemployment, high interest rates and fading confidence in the tech sector.
The latest series of data sparked fears of recession. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Concerns that shares in big technology companies, particularly those investing heavily in artificial intelligence (AI), have been overvalued have led to massive sell-offs in recent weeks. Further, soft earnings from some of the “Mag 7” as well as other big corporate giants dampened investors' mood. Market volatility is likely to persist in the coming months, given geopolitical conflict and the looming November elections (read: Market Volatility Jumps: ETFs to Tap).
In such a scenario, investors should bet on defensive investments. A defensive investment minimizes risk and protects your portfolio during market downturns. It typically involves investing in stable, low-volatility stocks that have a history of consistent performance, even during economic downturns.
As such, we have highlighted five such strategies:
Focus on Dividends
Dividend-paying stocks provide a steady income stream and help mitigate potential losses during weaker market periods. These stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis (read: 5 Safe ETF Zones to Invest in Amid Rekindled Recession Fears).
In particular, high-quality dividend stocks with a history of consistent dividend payments and growth can offer both income and the potential for capital appreciation over the long term. Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Core Dividend Growth ETF (DGRO - Free Report) fit well in this category. VIG has a Zacks ETF Rank #2 (Buy) and DGRO has a Zacks ETF Rank #1 (Strong Buy).
Pick Low-Beta ETFs
Beta is a measure of a stock's volatility relative to the market. Low-beta stocks tend to have lower price fluctuations than the market, providing stability during market downturns. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market crumbles. Core Alternative ETF (CCOR - Free Report) , with a beta of 0.09, and Innovator Defined Wealth Shield ETF (BALT - Free Report) , with a beta of 0.10, could be compelling picks (read: Market Anxiety? Protect Your Portfolio with Zero-Loss ETFs).
Add Value
Value investing is an investment strategy that focuses on purchasing stocks that are undervalued relative to their intrinsic value. Value stocks seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. These are less susceptible to the trending markets and their dividend payouts offer safety in times of market turbulence.
Given this, Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , having a Zacks ETF Rank #1 or #2, could be excellent picks.
Invest in Defensive Sectors
Certain sectors, such as consumer staples, utilities and healthcare, tend to be less sensitive to economic cycles and more resistant to market downturns. These generally act as a safe haven during political and economic turmoil. Stocks in these sectors generally provide higher returns in troubled times.
Investors seeking exposure to these sectors could find Consumer Staples Select Sector SPDR ETF (XLP - Free Report) , Global X U.S. Infrastructure Development ETF (PAVE - Free Report) and Vanguard Health Care ETF (VHT - Free Report) intriguing. XLP, PAVE and VHT have a Zacks ETF Rank #3 (Hold), #2 or #1, respectively.
Buy Covered Call ETFs
A covered call is an investment strategy used to generate income and potentially hedge against downside risk. It involves buying a stock or a basket of stocks and then selling or writing call options on those same assets. These options give the buyer the right, but not the obligation, to purchase the stocks at a predetermined price before a specified date. JPMorgan Equity Premium Income ETF (JEPI - Free Report) and Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) are the most popular ones in this space (read: Time for Covered Call ETFs?).
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5 ETF Strategies to Follow Amid the Current Market Turmoil
The U.S. stock market has been witnessing a huge sell-off in recent weeks on recession fears, making investors jittery. Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession, given rising unemployment, high interest rates and fading confidence in the tech sector.
The latest series of data sparked fears of recession. The labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Concerns that shares in big technology companies, particularly those investing heavily in artificial intelligence (AI), have been overvalued have led to massive sell-offs in recent weeks. Further, soft earnings from some of the “Mag 7” as well as other big corporate giants dampened investors' mood. Market volatility is likely to persist in the coming months, given geopolitical conflict and the looming November elections (read: Market Volatility Jumps: ETFs to Tap).
In such a scenario, investors should bet on defensive investments. A defensive investment minimizes risk and protects your portfolio during market downturns. It typically involves investing in stable, low-volatility stocks that have a history of consistent performance, even during economic downturns.
As such, we have highlighted five such strategies:
Focus on Dividends
Dividend-paying stocks provide a steady income stream and help mitigate potential losses during weaker market periods. These stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis (read: 5 Safe ETF Zones to Invest in Amid Rekindled Recession Fears).
In particular, high-quality dividend stocks with a history of consistent dividend payments and growth can offer both income and the potential for capital appreciation over the long term. Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Core Dividend Growth ETF (DGRO - Free Report) fit well in this category. VIG has a Zacks ETF Rank #2 (Buy) and DGRO has a Zacks ETF Rank #1 (Strong Buy).
Pick Low-Beta ETFs
Beta is a measure of a stock's volatility relative to the market. Low-beta stocks tend to have lower price fluctuations than the market, providing stability during market downturns. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market crumbles. Core Alternative ETF (CCOR - Free Report) , with a beta of 0.09, and Innovator Defined Wealth Shield ETF (BALT - Free Report) , with a beta of 0.10, could be compelling picks (read: Market Anxiety? Protect Your Portfolio with Zero-Loss ETFs).
Add Value
Value investing is an investment strategy that focuses on purchasing stocks that are undervalued relative to their intrinsic value. Value stocks seek to capitalize on the inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. These are less susceptible to the trending markets and their dividend payouts offer safety in times of market turbulence.
Given this, Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , having a Zacks ETF Rank #1 or #2, could be excellent picks.
Invest in Defensive Sectors
Certain sectors, such as consumer staples, utilities and healthcare, tend to be less sensitive to economic cycles and more resistant to market downturns. These generally act as a safe haven during political and economic turmoil. Stocks in these sectors generally provide higher returns in troubled times.
Investors seeking exposure to these sectors could find Consumer Staples Select Sector SPDR ETF (XLP - Free Report) , Global X U.S. Infrastructure Development ETF (PAVE - Free Report) and Vanguard Health Care ETF (VHT - Free Report) intriguing. XLP, PAVE and VHT have a Zacks ETF Rank #3 (Hold), #2 or #1, respectively.
Buy Covered Call ETFs
A covered call is an investment strategy used to generate income and potentially hedge against downside risk. It involves buying a stock or a basket of stocks and then selling or writing call options on those same assets. These options give the buyer the right, but not the obligation, to purchase the stocks at a predetermined price before a specified date. JPMorgan Equity Premium Income ETF (JEPI - Free Report) and Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) are the most popular ones in this space (read: Time for Covered Call ETFs?).