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Defensive ETF Strategies to Fend Off September Chills

Let's look at some safe ETF strategies that investors can play keeping in mind certain burning issues that can flare up uncertainty in September amid...

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This story originally appeared on Zacks

The aggravating coronavirus crisis, concerns surrounding the Fed tapering monthly bond purchases, peaked corporate earnings growth and September’s tainted reputation as the worst-performing month are spooking investors.

- Zacks

New COVID-19 cases are being registered among the unvaccinated population. Only 53% of the total U.S. population is fully vaccinated, which means that it’s a long way to achieving herd immunity. Per Johns Hopkins University data, the seven-day average of new COVID-19 cases surged more than 300% over the Labor Day reading of the previous year (per a CNN report).

Given the situation, Dr. Rochelle Walensky, the director of the US Centers for Disease Control and Prevention (CDC), had urged unvaccinated Americans to avoid travel during the Labor Day holiday weekend, according to a CNN report. In fact, U.S. airlines have been witnessing softness in bookings and an increase in trip cancellations over the past few weeks.

The resurging cases may scare investors over the possibility that the implementation of new lockdown measures to control the spread of coronavirus may hurt the global economic recovery achieved so far. Particularly, stocks that have been gaining from the reopening economy belonging to sectors like travel, energy, industrial, materials and retail may getimpacted.

Making the situation more intense, Goldman Sachs (GS) has downgraded its economic outlook mentioning the highly-contagious delta variant and diminishing fiscal stimulus support as major concerns (per a CNBC article). The investment bank now forecasts 5.7% annual growth in 2021 versus the 6.2% consensus. The firm has also trimmed its fourth-quarter GDP expectation to 5.5% from 6.5%, as stated in the same CNBC article.

ETF Strategies to Follow

Let’s look at some safe ETF strategies that investors can play keeping in mind certain burning issues that can flare up uncertainty in the near term:

Dividend Aristocrat ETFs to Combat COVID-19 Woes

Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth.

These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can consider like Vanguard Dividend Appreciation ETF VIG, SPDR S&P Dividend ETF SDY, iShares Select Dividend ETF (DVY) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) (read: Dividend ETFs to Combat Rising Fed's Stimulus Tapering Woes).

Low-Volatility ETFs to Manage Market Uncertainties

Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly-safe products usually do not surge in bull market conditions but offer more protection than the unpredictable ones. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options --  iShares Edge MSCI Min Vol USA ETF USMVInvesco S&P 500 Low Volatility ETF SPLViShares Edge MSCI EAFE Minimum Volatility ETF EFAViShares Edge MSCI Min Vol Global ETF (ACWV), Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) (read: Consider These Low-Volatility ETFs Amid Market Meltdown Scares).

Quality ETFs to Enhance Portfolio Composition

Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and high margins. These stocks also have a track record of stable or increasing sales and earnings growth. In comparison to plain vanilla funds, these products help lower 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 like iShares MSCI USA Quality Factor ETF QUALInvesco S&P 500 Quality ETF SPHQ and FlexShares Quality Dividend Index Fund (QDF) targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market environment (read: Quality ETFs Worth Your Attention Amid Delta Variant Blues).



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SPDR S&P Dividend ETF (SDY): ETF Research Reports

 

Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports

 

iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports

 

Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports

 

iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports

 

iShares MSCI EAFE Min Vol Factor ETF (EFAV): ETF Research Reports

 

Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports

 

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Zacks Investment Research