Tom Lydon on Fox: Quality and Short Duration in Today's Volatility

Related: An ETF That Has America’s Values in Mind Can Also Outperform

Quality Comes to the Forefront

With the most recent sell-offs in U.S. equities, value investing could be poised for a comeback as growth and momentum might be making their way to the exits. A byproduct of a shift to value is a focus on the quality of investments–being selective and using due diligence as screeners to find the best-performing stocks.

As such, Lydon mentioned investors flocking to funds like the iShares Edge MSCI USA Quality Factor ETF (BATS: QUAL). QUAL seeks to track the investment results of the MSCI USA Sector Neutral Quality Index composed of U.S. large- and mid-capitalization stocks with quality characteristics as identified through certain fundamental metrics.

“QUAL has stocks that have earnings growth, low debt-to-equity ratios and solid stocks that have to pass mustard in order to make it to the index,” said Lydon.

Advisors Prefer Short Duration

With the short-term rate adjustments being instituted by the Federal Reserve, investors can limit exposure to long-term debt issues and focus on maturity profiles. As a result, shorter durations are in favor on the fixed-income front to prevent prolonged exposure to a bond market that’s seen its fair share of rising Treasury yields as of late.

“There’s also lower duration on the bond ETFs that advisors are going into,” said Lydon. “Long duration is frankly risky in a rising rate environment.”

Examples of bond ETFs with short duration exposure include the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB), which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. Another option is the iShares 1-3 Year Credit Bond ETF (NASDAQ: CSJ), which tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index, which includes debt that has a remaining maturity of greater than one year and less than or equal to three years.

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