ETFs To Rotate Into During Economic Uncertainty, Sluggishness

There’s no doubt that the last few months have been trying times for many investors. Keeping pace with the recent augmented volatility and market jitters has sent a multitude of investors running for safe havens like bonds, gold, and Bitcoin.

Others are eschewing markets altogether, as there has been roughly $7 billion in ETF outflows this May, sending investors running for protection. Rather than avoid the markets entirely, some analysts recommend using ETFs to rotate into different sectors, to ride out the volatility and potential economic slowdown.

CFRA’s Todd Rosenbluth and State Street’s Matthew Bartolini discussed their thoughts on CNBC with Leslie Picker on Wednesday.

Bartolini said, “I think where we are in the market cycle, with slowing economic growth and slowing profits, investors should really target quality, but don’t overpay. That can provide a little bit of a margin of safety if these micro-bursts of volatility really extend themselves.”

Rosenbluth felt that investors may get some reprieve next month from the recent market thrashing, and recommends looking at more conservative ETF strategies for the summer months.

Rosenbluth explained, “Well we at CFRA think we’ll see a bounceback in June. That typically has happened when there’s been a selloff like we’ve had in many historically. But we’ve seen inflows into quality. Matt mentioned to the quality ETF QUAL, iShares saw some strong inflows. We’ve seen minimum or low volatility ETFs like SPLV or USMV see strong interest, and we think dividend strategies are a good place to be able to go, if you’re looking at SDY from State Street, or NOBL, which is from Proshares. Those are good places to be able to hide in the marketplace, get some income, and ride out some of this volatility we’re likely to have during the summer.”

Bartolini believes that despite the current market unpredictability, investors should stay invested, as the Fed policies are supportive of a growing economy.

Bartolini added, “Well I think investors should broadly stay invested, just given that we are continuing to have accommodative monetary policies and fiscal stimulus that is likely to continue. So I think what this just tells us is that investors are willing to stay invested but move toward more high quality names, with sustainable cash flows, and high quality balance sheets. Because typically in an economic slowdown, those are the type of stocks that tend to outperform.”

Rosenbluth also recommended some hedging options using ETFs, that will allow investors to rotate into other market sectors for protection, rather than retreat from the selloff.

Rosenbluth explained, “You could also rotate into some of the defensive sectors. Consumer staples, healthcare have historically done well during these periods of time. And you’ve got ETFs like XLV, the healthcare ETF from State Street, you’ve got VDC, the Vanguard Consumer Staples ETF. Investors have done well rotating during these volatile periods of time, instead of hiding in the marketplace. You can do that to be able to hedge out some of the risk that’s out there in the market, and be able to rotate not just necessarily retreat from the broader selloff.”

Finally, Bartolini spoke to the utility of ETFs as a protective vehicle in times of economic and political ambiguity, stating, “We see more rotations into fixed income ETFs to really provide that portfolio ballast during times of volatility. That really just shows the shows the sophisticated and tactical nature that ETFs can provide for clients that are moving in and out of the market based on the latest information.”

Watch the CNBC segment here:

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