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Quality ETFs to the Rescue Amid Rising Market Concerns

Here we highlight some Quality ETFs that can be promising bets amid the current market conditions.

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This story originally appeared on Zacks

The United States is again facing a tough time curbing the coronavirus outbreak. Wall Street has also been mostly disappointing in the holiday-shortened week as all the three major indices might end the week in losses. Declining for the fourth consecutive day, the S&P 500 lost about 0.5% on Sep 9. Notably, the dual factors of rising COVID-19 cases and uncertainty surrounding the Fed’s stimulus tapering decisions are making investors increasingly cautious.

- Zacks

According to the 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). New COVID-19 cases are mostly being registered among the unvaccinated population. Unfortunately, only 53% of the total U.S. population is fully vaccinated, which means that it’s a long way to achieving herd immunity.

The resurging cases might scare investors as they worry about the implementation of new lockdown measures to control the spread, which is raising worries regarding the sustainability of economic recovery from the pandemic-led slump.

Certain economic data releases have also turned out to be very disappointing. The U.S. economy added only 235,000 jobs in August 2021 (the lowest in seven months). The metric was far behind the forecast of 750,000 as a surge in COVID-19 infections probably kept companies from hiring and workers from actively looking for a job. The U.S. unemployment rate declined to 5.4% in July 2021, below market expectations of 5.7%. The number of unemployed persons dropped by 782,000 to 8.7 million.

The consumer confidence in the United States slipped to a six-month low in August. The Conference Board's measure of consumer confidence index stands at 113.8 (the lowest level since February), comparing unfavorably with July’s reading of 125.1. August’s reading also missed the consensus estimate of the metric declining to 124, per a Reuters’ poll.

Going on, 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 for 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.

Quality ETFs to Watch Out

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 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 research proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.

Given that, 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 QUAL

This fund 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: Defensive ETF Strategies to Fend Off September Chills).

Expense Ratio: 0.15%

AUM: $25.49 billion

Invesco S&P 500 Quality ETF SPHQ

This fund 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, return on equity, accruals ratio and financial leverage ratio (read: ETF Strategies to Profit From a Historically Weak September).

Expense Ratio: 0.15%

AUM: $3.19 billion

FlexShares Quality Dividend Index Fund QDF

This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Index.

Expense Ratio: 0.37%

AUM: $1.63 billion

SPDR MSCI USA StrategicFactors ETF QUS

This fund offers exposure to stocks that have a combination of value, low volatility and quality factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Index.

Expense Ratio: 0.15%

AUM: $998.9 million

Barron's 400 ETF BFOR

This ETF seeks investment results that correspond generally, before fees and expenses, to the performance of the Barron's 400 Index.

Total Operating Expenses: 0.70%

AUM: $148.6 million



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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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Zacks Investment Research