Is Recession Knocking at the Door? ETF Strategies to Follow

Wall Street may be hitting highs but economic slowdown fears and its impact on corporate earnings can’t be completely ignored. In fact, a new study from the MIT Sloan School of Management and State Street Associate reveals that there’s a 70% probability of a recession in the next six months.

The research is based on an index, which currently reads 76%. Going back to 1916, researchers found that once the index crossed the 70% threshold, chances of a recession rise to 70%, per an article published on CNBC.

Agreed, U.S. economic growth has been pretty decent on a solid labor market. The otherwise-struggling manufacturing sector bounced back in January. Housing starts soared to a 13-year high. Existing home sales, the key area of the U.S. housing market, climbed in December to the best clip since early 2018. The phase-one U.S.-China trade deal was also cracked in January. Beijing recently announced plans to reduce additional tariffs imposed on 1,717 U.S. goods in 2019 to half.

But then, aren’t China’s lower tariff plans already reflected in the current price level? This is especially true given U.S. stocks are surging since the start of Q4 on trade deal hopes. Then there are global growth worries. In the latest of a series of downgrades, the IMF now expects global growth of just 2.9% for 2019. This is lower than its previous 3% estimate. The U.S. economy is expected to slide to 2% in 2020 from an expected 2.3% growth rate in 2019, despite the trade deal (read: Economic Slowdown in 2020? ETF Strategies to Help You).

And who can ignore the coronavirus fears? Death toll is rising in Mainland China with every passing day. Starting from car to aerospace, tourism, retail and entertainment, all industries are likely to suffer as China has been facing travel restrictions from many countries. Also, several cities in the country are under lockdown. A number of factories have been shut down as well. Meanwhile, analysts are yet to project the virus’ impact on Q1 corporate earnings.

Against this backdrop, we highlight a few ETF strategies that can prove beneficial in the coming days.

Dividend ETFs Could Come to Your Rescue

Dividends or regular current income could save investors even if there is capital loss. So, one can bank on dividend ETFs like Reality Divcon Leaders Dividend ETF LEAD, Victory Dividend Accelerator ETF VSDA and Invesco International Dividend Achievers ETF PID.

The fund PID lends exposure to companies that have increased their aggregate annual regular cash dividend payments consistently for at least the last five consecutive years. It yields a solid 4.01% annually. VSDA looks to tap securities which are likely to pay out higher dividends. LEAD invests in the largest U.S. companies that have the highest probability of raising their dividends in the next 12 months (read: 5 Dividend ETFs That Beat S&P 500 in 2019).

Multi-Asset ETFs: A Go-To Product?

In volatile times, investors seek safety in bonds. Thus, one can safeguard the portfolio against any impending crash with multi-asset ETFs that offer solid dividend yield as well. YieldShares High Income ETF YYY (yields 8.68% annually) and Invesco DWA Tactical Multi-Asset Income ETF DWIN (4.73% annually) are a few such products (read: Will Virus Infect Q1 Earnings? Multi-Asset ETFs to Play).

Factor-Based Quality ETFs to Bet On

Quality ETFs are relatively safe and can help investors fight economic slowdown (if it at all arises).SPDR MSCI USA StrategicFactors ETF QUS and SPDR MSCI World StrategicFactors ETF QWLD are top-ranked ETFs that have a beta of 0.77x and 0.92x, respectively. Such low-beta quality ETFs may stay steady in the wake of sudden selloffs as they are less co-related to the broader market (read: Are Investors Too Complacent About Market Rally? ETFs to Buy).

Utilities ETFs Could be Winning Bets

Utilities ETFs are also low-beta products. So, investors can add top-ranked Fidelity MSCI Utilities Index ETF FUTY and Vanguard Utilities Index Fund ETF Shares VPU to their portfolios. Investors should note that the sector is well-placed as electric utilities are “leading a clean energy transformation.” The U.S. electric utility sector has already invested close to $1 trillion in smart energy infrastructure over the past decade, according to reports and is thus poised to benefit from the rise in clean energy investing.

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Amplify High Income ETF (YYY): ETF Research Reports
 
SPDR MSCI World StrategicFactors ETF (QWLD): ETF Research Reports
 
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
 
Reality Shares DIVCON Leaders Dividend ETF (LEAD): ETF Research Reports
 
Invesco International Dividend Achievers ETF (PID): ETF Research Reports
 
SPDR MSCI USA StrategicFactors ETF (QUS): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
VictoryShares Dividend Accelerator ETF (VSDA): ETF Research Reports
 
Invesco DWA Tactical Multi-Asset Income ETF (DWIN): ETF Research Reports
 
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