ETF Strategies to Follow Amid Recession Scares

The latest report by the Institute for Supply Management (ISM) on U.S. manufacturing has been disappointing. The ISM Manufacturing Purchasing Managers’ Index (PMI) in the United States was the lowest level in more than 10 years at 47.8% for September 2019. This has renewed recessionary fears among analysts. Now all eyes are on the monthly jobs report that is scheduled to be released on Oct 4. However, Barclays has predicted a 25-30% chance of the U.S. economy going into a recession within the next 12 months (read: ETFs in Focus as US Manufacturing PMI Data Disappoints).

Meanwhile, Credit Suisse sees the U.S. economy in “semi-recession” as a mix of strong and weak economic data is keeping investors and analysts in the dark. It is being anticipated that the September jobs report will show 148,000 new payrolls along with a decline in jobless claims.

Also, the inversion of the yield curve on the short end due to the 10-year Treasury note having a lower yield than the 3-month Treasury bill is being considered a recessionary signal (read: Top ETF Stories of September).

Also, the U.S. stock market is seeing a shaky start to the fourth quarter. The Dow Jones Industrial Average has already lost 2.7% since the beginning of October (as on Oct 3). The S&P 500 index and the NASDAQ Composite have also lost 2.2% and 1.6%, respectively, in the same period.

Given the situation, let’s look at some ETF strategies that investors can follow for a smooth sail in these turbulent times.

Dividend ETFs to Beat the Heat

The appeal of dividend ETFs has increased this year on investors’ quest for juicy yields. This is especially true against the backdrop of falling yields, easing monetary policy globally and market uncertainty triggered by trade uncertainties, geopolitical tensions and global growth slowdown concerns. Moreover, central banks across the globe are taking steps to shore up slowing economies that will hurt yields. Against this backdrop, let’s take a look at some dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund DGRW, FlexShares Quality Dividend Defensive Index Fund QDEF, WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD.

REIT ETFs to Your Rescue

Real estate investment trusts (REITs) have had a good run on the bourses so far this year. A dovish Fed can be cited as the main factor driving the upside. When interest rate drops, mortgage rates fall, making real estate or refinancing mortgages more affordable. This in turn boosts real estate sales. Further, Sino-US trade war tensions, uncertainty in market conditions due to geo-political tensions, slowdown in the global economy and Brexit woes are making investors jittery, adding to the lure of these funds. This is because these funds offer outsized yields and act as good investing options when increased safe-haven trades keep yields at check. In view of this, investors can take a look at ETFs like JPMorgan BetaBuilders MSCI US REIT ETF BBRE, iShares Core U.S. REIT ETF USRT, Nuveen Short-Term REIT ETF NURE, Invesco S&P 500 Equal Weight Real Estate ETF EWRE and Schwab U.S. REIT ETF SCHH (read: Is it the Right Time to Invest in REIT ETFs? Let's Find Out).

Metals Seem More ‘Precious’ Now

The prices of precious metals like gold and silver rise during chaotic market conditions. Geopolitical tensions, global recession fears and a stock market slump are currently driving demand for precious metals as a store of wealth. Additionally, rising hopes of loose monetary policies across the globe are adding to metals’ strength. In such a scenario, investors can opt for ETFs like iShares Silver Trust SLV, Invesco DB Silver Fund DBS, SPDR Gold Trust ETF GLD, iShares Gold Trust IAU and Aberdeen Standard Physical Palladium Shares ETF PALL.

Play Safe With Utility ETFs

The year 2019 has been quite promising for the utility sector. The sector is among the most stable sectors for the long term as its players are likely to offer decent returns irrespective of market conditions. It is known for its non-cyclical nature and often acts as a safe haven for investors. Against this backdrop, investors can opt for Utilities Select Sector SPDR Fund XLU, Vanguard Utilities ETF VPU, iShares U.S. Utilities ETF IDU and Fidelity MSCI Utilities Index ETF FUTY (read: Top Performing Utility ETFs This Year).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Silver Trust (SLV): ETF Research Reports
 
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
WisdomTree U.S. Quality Dividend Growth Fund (DGRW): ETF Research Reports
 
Invesco S&P 500 Equal Weight Real Estate ETF (EWRE): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
iShares U.S. Utilities ETF (IDU): ETF Research Reports
 
Schwab U.S. REIT ETF (SCHH): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
 
Invesco DB Silver Fund (DBS): ETF Research Reports
 
iShares Core U.S. REIT ETF (USRT): ETF Research Reports
 
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report