Bet on Quality ETFs to Combat Omicron and Fed Worries

This story originally appeared on Zacks

Wall Street is again going through a tough phase. The Dow Jones Industrial Average and the S&P 500 indices declined 3.7% and 0.8%, respectively, in November. The Russell 2000 index lost 4.3% in the month, marking its worst since March 2020.

– Zacks

The mood on the bourses seemed tensed on the final trading day of the month on the rising concerns over omicron strain and the possibility of the Federal Reserve increasing the pace of their tapering process. The new variant is feared to be carrying the combined features of previous variants and can have high transmissibility and lower vaccine potency.

Investors willing to sail through the current market turbulences from the latest COVID-19-variant-related concerns can consider iShares MSCI USA Quality Factor ETF QUAL, Invesco S&P 500 Quality ETF SPHQ, FlexShares Quality Dividend Index Fund QDF, SPDR MSCI USA StrategicFactors ETF QUS and Barron’s 400 ETF BFOR.

Moderna MRNA CEO Stephane Bancel’s comment to the Financial Times on Nov 29, claiming that he anticipates the existing COVID-19 vaccines to prove comparatively less effective against the new strain, has brought about a new wave of concerns (according to a CNBC article).

The omicron variant has now been reported in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong. Going on, the World Health Organization (WHO) has labeled the variant as a “variant of concern.” At least 70 countries and territories are believed to have put travel restrictions from several African countries to control the outbreak, per a CNN report.

Federal Reserve Chair Jerome Powell further dented the market sentiments by mentioning that the central bank will be discussing speeding up the tapering process from the $15 billion-a-month schedule decided previously, per a CNBC article. This move might be taken to control the persistently high inflation levels, given that the U.S. economy is strongly recovering from the pandemic-led slump.

Commenting on the current market scenario, Gregory Daco, chief U.S. economist at Oxford Economics, has said that “Markets appear to be having trouble digesting the combo of elevated uncertainty around the impact of the Omicron variant and a hawkish Fed pivot in the context of persistently elevated inflation.” This was stated in a CNBC article.

Quality ETFs Worth a Look

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. In comparison to plain vanilla funds, these products help lower volatility and perform rather well during market uncertainty. Further, academic researches proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.

Against such a backdrop, we highlighted five ETFs targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market scenario.

iShares MSCI USA Quality Factor ETF

iShares MSCI USA Quality Factor ETF provides exposure to the 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 (read: 5 Winning ETF Ideas for the Fourth Quarter).

Expense Ratio: 0.15%

AUM: $27.85 billion

Invesco S&P 500 Quality ETF 

Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks, that has the highest-quality score based on three fundamental measures, namely, the return on equity, accruals ratio and the financial leverage ratio.

Expense Ratio: 0.15%

AUM: $3.29 billion

FlexShares Quality Dividend Index Fund 

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%

AUM: $1.77 billion

SPDR MSCI USA StrategicFactors ETF 

SPDR MSCI USA StrategicFactors ETF offers 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.

Expense Ratio: 0.15%

AUM: $1.10 billion

Barron’s 400 ETF 

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: 0.70%

AUM: $159 million

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Moderna, Inc. (MRNA): Free Stock Analysis Report
 
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
 
SPDR MSCI USA StrategicFactors ETF (QUS): ETF Research Reports
 
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