ETF Strategies to Combat the FOMC June Meeting Worries

Investors are eagerly waiting for the Federal Reserve’s Federal Open Market Committee (FOMC) scheduled for Jun 15-16. The central bank is expected to discuss the U.S. economic recovery so far and take its decision on the economic and interest rate forecasts. This will also highlight the Fed’s take on increasing rates.

Notably, market experts expect the Fed to continue with the easy monetary policy.  Meanwhile, recently released hotter-than-expected May’s consumer inflation data might make investors worry about interest rate hikes to tame growing pricing pressure or tapering off some monetary support by the Fed.

In this regard, Jim Paulsen, chief investment strategist at the Leuthold Group, has said, “Considering the recent outsized inflation reports, the Federal Reserve’s meeting this week will be scrutinized for any telltale sign the Fed’s timetable for either raising the Funds Rate or tapering QE is being moved forward. Any evidence suggesting monetary tightening is being moved forward will likely bring volatility to the stock market,” according to a CNBC article.

Moreover, Treasury Secretary Janet Yellen’s comment that higher interest rates "would actually be a plus for society's point of view and the Fed's point of view," per an interview with Bloomberg, are keeping investors on the edge over concerns about interest rate hikes.

Investors have already kept the Wall Street rally tight due to inflation-related concerns last month. They were worried that rising inflation may hurt corporate margins and profits. They also fear that the persistent rise in inflation may build pressure on the Fed to tighten the monetary policy, according to a CNBC article.

Notably, the consumer price index for May, which represents a basket of food, energy, groceries and prices across a wide range of goods, climbed 5% from the prior-year (per a CNBC article) tally. It surpassed the Dow Jones estimate of a 4.7% rise. Notably, the consumer prices for May increased at the highest speed since the summer of 2008, as stated in a CNBC article.

The increasing concerns about the U.S. inflation levels continue to dampen U.S. consumer sentiments. Notably, the University of Michigan’s consumer sentiment index declined to 82.9 in May from 88.3 last month. The reading remained mostly flat with May's preliminary reading of 82.8. The metric also remained on par with economists’ forecasts, per a Reuters poll.

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 uncertainty in the near term:

Dividend ETFs to Play Now

The appeal of dividend ETFs has been rising in the face of easing monetary policy on the global front, market uncertainty triggered by the pandemic and deceleration in global growth. This is because dividend-paying securities are major sources of consistent income for investors when returns from equity markets are uncertain.

Although there are plenty of options in the dividend ETF world, ‘dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turbulence. Dividend aristocrats are the blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, the dividend aristocrat funds provide investors with dividend growth opportunities in comparison to the other products in the space but might not necessarily have the highest yields.

Against this backdrop, dividend ETFs like Vanguard Dividend Appreciation ETF VIG, SPDR S&P Dividend ETF SDY, iShares Select Dividend ETF DVY, ProShares S&P 500 Dividend Aristocrats ETF (NOBL) and iShares Core Dividend Growth ETF (DGRO) can be considered (read: Vaccination & Economic Recovery to Boost These ETFs).

Low-Volatility ETFs to Watch Out

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: 6 Low-Beta ETFs to Bet on Amid Market Volatility).

Quality ETFs to Consider

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 ETFs That Saw Maximum Capital Inflows Last Week).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SPDR S&P Dividend ETF (SDY): ETF Research Reports
 
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
 
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
 
iShares Select Dividend ETF (DVY): ETF Research Reports
 
iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
 
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
 
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report