Update Your Shortlist of Quality ETFs for a Recession | ETF Trends

Advisors have all kinds of arrows in their quiver, tuned for whichever scenario their clients are looking at — just starting out, prepping a college fund (or two), or approaching retirement. Knowing what tools are available is a critical part of the job, and with a recession not just a possibility, but a likelihood according to American Century Investments, it may be time for advisors to revisit some quality ETFs for a recession.

Per research from American Century Investments, recession “is the economic scenario most likely to unfold in the U.S. over the coming months,” due to the compounded impact of ongoing rate hikes by the Federal Reserve, persistent inflation, and supply chain issues. Though the firm also assesses the implications of stagflation and a goldilocks, “soft landing” scenario, the prospect of a recession invites investors and advisors to take stock of available funds for a downturn.

Recession would drive U.S. Treasury yields down and credit spreads wider, with inflation still sticky in areas like housing, services, and energy. In such a scenario, fixed income investors may want to look to longer duration offerings that help protect from that ongoing inflation, as well as strong credit quality. In equities, style distinctions between growth and value become less important, with a quality lens the important factor.

“Given the market volatility and earnings uncertainty, investors are turning to shares of companies with strong balance sheets and stable cash flow generation commonly found in quality ETFs,” said VettaFi’s head of ETF research, Todd Rosenbluth.

As such, advisors may want to take a look at a suite of quality ETFs for a recession like the duo of the American Century STOXX U.S. Quality Growth ETF (QGRO) and the American Century STOXX U.S. Quality Value ETF (VALQ), offering a quality first approach to each of those factors for 29 basis points. QGRO has outperformed its ETF Database Category Average and its Factset Segment Average YTD returning 9%, adding $23.6 million in one month net inflows. VALQ, meanwhile, just hit its five year mark last month. 

The actively managed American Century Quality Preferred ETF (QPFF) invests in preferred securities from U.S. and non-U.S. companies, looking to identify high profitability issuers that can sustain dividends throughout the whole market cycle – a powerful resource if a recession comes to pass. QPFF charges 32 basis points, returning 6.2% YTD with an annual dividend yield of 3.05%.

Whether a recession is assured or not, having a recently updated shortlist of quality strategies that can help advisors navigate a recession is an important tool. Whether with an equity fund like VALQ or QGRO, or a more current income-focused approach like QPFF, investors may want to be prepared.

For more news, information, and analysis, visit the Core Strategies Channel.