ETF Strategies to Combat Delta Variant Woes & Market Uncertainty

After hitting an all-time closing high on Aug 3, the S&P 500 index declined around 0.5% in yesterday’s trading session. Moreover, the Dow Jones Industrial Average fell 0.9% on the same day.

There is no doubt that the second-quarter 2021 earnings season is going strong. It is worth noting here that the second-quarter earnings season has already seen better-than-expected results, stimulating the rally in stock markets. Per FactSet data, 88% of the S&P 500 companies have reported an earnings surprise (per a CNBC article). Notably, at the end of the reporting season, if the earnings growth is 85.1%, it will stand out as the highest percentage since 2009, according to a CNBC report.

However, investors are worried about the sustainability of the economic and earnings growth achieved so far since the pandemic-led slump. Commenting on the current market conditions, Chris Osmond, chief investment officer at Prime Capital Investment Advisors, has also said that “Right now I think that the market is moving forward a little cautiously with the triple-peak theory — the potential peak in earnings, peak in economic growth and the potential peak in stimulus looming, both fiscally and from a monetary perspective,” per a CNBC article.

Also, the United States is seeing a rising number of new delta variant cases. It has witnessed a seven-day moving average of about 72,790 new cases per day on Jul 30, per Centers for Disease Control and Prevention (CDC) data and as mentioned in a CNBC report. Unfortunately, the number has exceeded the peak of about 68,700 new cases per day observed last summer, at a time when the United States didn’t have an authorized vaccine, according to CDC Director Dr. Rochelle Walensky (per a CNBC article). Going on, according to Johns Hopkins University data, the seven-day average rose to about 80,000 new cases per day as of Aug 1, as stated in a CNBC article.

Disappointing economic data highlighted that the U.S. manufacturing activity expanded at a slower pace in July for the second consecutive month amid persistent raw material shortages. In fact, an Institute for Supply Management (ISM) survey recently highlighted that a measure of manufacturing activity declined the maximum in 16 months.

The ISM's index of national factory activity slipped to 59.5 last month (the lowest level since January) from 60.6 in June. A reading above 50 signals expansion in manufacturing that accounts for about 11.9% of the U.S. economy. The metric compares unfavorably with a forecast of about 60.9, per a Reuters poll.

Going on, the U.S. GDP grew at a 6.5% annualized rate in the second quarter of 2021, per the Commerce Department’s first estimate (as mentioned in a CNBC article). However, the metric lagged the Dow Jones estimate of 8.4%.

ETF Strategies to Follow

Let’s look at some safer 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 Manage Rising COVID-19 Chills

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 Scaling New Peaks on Bull-Bear Play).

Low-Volatility ETFs to Ride Out 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: 5 ETF Zones Hitting Highs As Growth Worries Resurface).

Quality ETFs to Improvise 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 Hot Equity ETFs of Last Week to Sizzle on Solid Earnings).

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SPDR S&P Dividend ETF (SDY): ETF Research Reports
 
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
 
ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports
 
iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
 
Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports
 
iShares Select Dividend ETF (DVY): 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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