Yahoo Finance Quality ETFs to Shine in Second Half of 2023?
The interest rates in the United States are expected to remain higher for longer. Despite some officials seeking for a 0.25% hike in rates in June due to a solid labor market and signs of economic resilience, the decision to hold rates steady was unanimous, leading to a pause.
But the committee's dot plot revealed expectations of a funds rate of 5.6% by the end of 2023, implying two more quarter-point rate hikes are likely before the year's end. The chances of a rate hike in July are pretty high at the current level. The possibility of raising rates at successive policy meetings is also likely.
The upbeat jobs data made this chance more likely. Though the U.S. economy added the lowest number of jobs since December of 2020, the number remained more than twice the 70K-100K needed per month to keep up with growth in the working-age population.
Moreover, private sector jobs surged by 497,000 in June, way higher than the 267,000 gains in May and much better than the 220,000 estimate. Leisure and hospitality led with 232,000 new hires, followed by construction with 97,000, and trade, transportation and utilities at 90,000.
Market Reaction and Future Speculations
The potential for more hikes put pressure on stocks. The full effects of the Fed's policy tightening since the start of 2022 are yet to be felt. The benchmark U.S. treasury yields jumped to 4.06% on Jul 7 (following upbeat ADP job print), up from 3.86% recorded on Jul 3. The one-month U.S. treasury yield jumped to 5.32% on Jul 6, up from 5.27% recorded on Jul 3. The broader market took a dive on Jul 5 and 6 due to higher rates.
What Do Market Expects Think?
The BlackRock expects a mild slowdown but thinks that the near-term upside for markets is capped and that downside risks are underappreciated. Investors could consider high-quality large-cap companies (read: Midyear ETF Market Outlook & Investing Strategies).
Why Invest in Quality ETFs?
One thing is clear: interest rates are expected to remain at an elevated level this year. While value stocks and ETFs fare better in a higher-rate environment, several growth sectors offer attractive valuations right now. However, complicating the situation are factors such as a regional banking crisis, a struggling real estate sector that has yet to recover, and sticky inflation.
In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can minimize the risks attached with economic slowdown and market fluctuations.
ETFs in Focus
FlexShares Quality Dividend ETF (QDF)
The underlying Northern Trust Quality Dividend Index is designed to provide exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust 1250 Index and the Index are selected based on expected dividend payment and fundamental factors. The fund yields 2.30% annually and charges 37 bps in fees.
Invesco S&P 500 Quality ETF (SPHQ)
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. The fund charges 15 bps in fees and yields 1.68% annually.
iShares MSCI USA Quality Factor ETF (QUAL)
The underlying MSCI USA Sector Neutral Quality Index is based on a traditional market capitalization-weighted parent index, the MSCI USA Index which includes U.S. large and mid-capitalization stocks. The fund charges 15 bps in fees and yields 1.33% annually.
SPDR S&P Dividend ETF (SDY)
The underlying S&P High Yield Dividend Aristocrats Index measures the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years. The fund charges 35 bps in fees and yields 2.65% annually.
ProShares S&P Technology Dividend Aristocrats ETF (TDV)
The underlying S&P Technology Dividend Aristocrats Index targets companies from information technology, internet and direct marketing retail, interactive home entertainment, and interactive media and services segments of the economy. The fund charges 45 bps in fees.
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SPDR S&P Dividend ETF (SDY): ETF Research Reports
iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports
ProShares S&P Technology Dividend Aristocrats ETF (TDV): ETF Research Reports
