As ETF investors carefully look over the current market environment, many are considering equity and fixed-income strategies that could help diversify and enhance an investment portfolio in a more trying environment.
On the recent webcast, Macro Strategies: Navigating Choppy Market Waters, Kevin Flanagan, Senior Fixed Income Strategist for WisdomTree, argued that supportive elements that previously bolstered the economy and U.S. markets are beginning to fade so investors should hold back expectations. While we continue to see the economy improve, with strong GDP, stable inflation and robust employment with rising wages, the economy is moving toward the later stages of the traditional business cycle and investors should take steps to adapt to the changes.
While there may be growing risks, Jeremy Schwartz, Executive Vice President and Global Head of Research at WisdomTree, believed that investors should not lose sight of the equities market. Global stocks took a heavy blow in the past year, but they have also staged an impressive rebound in the first month of the year. Many investors are stepping back in to get in on a cheap entry point, with the S&P 500 showing an estimated price-to-earnings of 16.5x, compared to its average of 18.0x
Some investors, though, remain cautious of the rebound, but Schwartz pointed out that there are also more defensive ETF strategies that may hold up better in these trying times. Specifically, he highlighted factor investments.
“The quality factor has outperformed in late stages of market cycles and during market slowdowns,” Schwartz said.
“Quality stocks are well positioned for higher volatility, but active funds are underweight high quality stocks,” he added.
ETF investors can look to a fund like the WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ: DGRW) as a way to hone in on quality names and and still generate some extra cash on the side. DGRW includes companies with high long-term earnings-growth forecasts for the next three to five years and weights components based on the value of dividends they are expected to pay over the next year. The ETF is not heavily weighted to the rate-sensitive sectors that are often prominent in many yield-based dividend funds.