Exchange traded funds that focus on quality companies are garnering more attention as investors look to take cover in these stormy conditions.
“We’ve seen a lot more returns to quality stocks, to value stocks, and investors looking for cover in safer areas of the market,” Paul Moghtader, a managing director on the quant team for Lazard Asset Management, told Bloomberg.
At the start of the year, investors were piling into the growth and momentum game as U.S. markets pushed higher. Over the first half of the year, growth and momentum ETFs saw the largest amount of inflows, bringing in $8 billion and $3.5 billion, respectively, according to Bloomberg Intelligence.
However, as volatility spiked and markets retreated, the growth and momentum play lost steam. Over the later half of the year, the amount into growth halved while momentum ETFs experienced net outflows. Meanwhile, value and low volatility products enjoyed the greatest demand, attracting a combined $30 billion in net inflows.
Looking ahead, analysts are almost unanimously calling for a shift to quality or companies with healthy balance sheets and strong cash flow.
“As people position into 2019, investors are getting more defensive, and defensive usually targets quality: quality of earnings, earnings sustainability, making sure you have positions that are solid in case there is more volatility,” Omar Aguilar, the chief investment officer for equities at Charles Schwab Investment Management, told Bloomberg. “The theme for factors going into next year is definitely toward defensive.”