ETF Strategies To Combat Rising Delta Strain Concerns

Money, Profit, Finance, Business, Return, Yield

Wall Street has started to feel the pressure of economic growth concerns arising from the rapid spread of COVID-19 variants. The Dow Jones Industrial Average lost about 0.8% on Jul 8. The S&P 500 and the Nasdaq Composite indices were also down 0.9% and 0.7%, respectively, on the day. In fact, all these major indices might close lower for the week.

Major weakness was observed in spaces like cruise line, airline and home improvement that are more likely to gain from reopening of economies. For instance, there was a decline of more than 1% in each of Carnival Corporation CCL and Norwegian Cruise Line (NCLH) shares on July 8. United Airlines UAL and Delta Air Lines (DAL) also lost more than 1%. Nordstrom JWN also declined about 3%, whereas The Home Depot (HD) dipped 1.5%.

Chip stocks like Micron Technology (MU), QUALCOMM Incorporated QCOM and Applied Materials (AMAT) declined more than 1% and NVIDIA Corporation NVDA lost 2.3% on July 8. Looming concerns over global economic growth majorly led to weakness in the space. Shares of major tech players like Microsoft MSFT, Apple AAPL, Facebook (FB) and Google-parent Alphabet (GOOGL) also took a hit.

The global COVID-19 death tally surpassed 4 million on July 7. In another disappointing development, the Olympics has banned spectators in the summer games to be held at Tokyo from July 23 to August 8, per a CNBC article. In order to prevent the spread of the virus, Japan has declared a state of emergency from July 12 to August 22.

Also, according to the latest CNN tally, the Delta strain is now found in all 50 states and Washington, DC. Further, this highly contagious and aggressive variant accounted for 51.7% of all new coronavirus infections recorded in the country over the two weeks that ended July 3, per the Centers for Disease Control and Prevention data and a CNN report. Notably, the rapidly-spreading mutants induced a widespread fear, putting responsibility on the local and state officials to ramp up the vaccination rate.

The 10-year Treasury yield at 1.25% (the lowest since late February) on July 8 also highlights that market participants are concerned about the strength of the U.S. economic mend achieved so far, per a CNBC article.

ETF Strategies to Consider

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

Dividend Aristocrat ETFs to Combat Delta Variant Threat

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 Aristocrat ETFs That Deserve a Spot in Your Portfolio).

Low-Volatility ETFs to Safeguard Against 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 USMV, Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF (EFAV), iShares Edge MSCI Min Vol Global ETF (ACWV), Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) (read: 4 ETF Zones to Invest in As Volatility Spikes).

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 QUAL, Invesco 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: 5 Winning ETF Strategies for the Second Half).

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