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5 ETFs to Follow Despite Cut in U.S. Growth Forecast

Sanghamitra Saha
Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes

U.S. growth momentum seems to be slowing. The growth momentum unexpectedly decelerated in the fourth quarter having increased at a 2.6% annual rate, from 3.2% growth clip in the third quarter. Now, several research houses have jumped on the bandwagon of cutting the first-quarter GDP growth estimates.

Inside Reduced Growth Forecast for Q1

Wall Street firms reduced their forecasts for U.S. economic growth in the first quarter of 2018 reflecting a decline in January retail sales. Morgan Stanley sliced its estimate for gross domestic product to 2.9% from 3.3%. Barclays and IHS pared their GDP estimates to 2.3% from 2.5%.  And Bank of America Merrill Lynch cut its target to 2% from 2.3%.

U.S. retail sales dropped 0.3% sequentially in January, marking “the largest decline since February 2017.” January growth was recorded almost after no growth in December and below market expectations of a 0.2% gain. A slump in auto sales was behind the move.

Investors have high hopes on new tax codes and Trump’s proposed fiscal reflation and expect the growth momentum to get a material boost. However, retail sales decline jumbled up the figure. Plus, there is threat from higher inflationary expectations and rising bond yields.

Against this backdrop, it is better to look at quality ETFs or the ones that are likely to march ahead on synchronized global growth or their fundamental strength.

iShares MSCI USA Quality Factor ETF QUAL    

QUAL holds high-quality large and mid-cap U.S. stocks identified through three main fundamental variables: high return on equity (ROE), stable year-over-year earnings growth and low financial leverage. It charges a low expense ratio of 15 basis points per year (read: Markets Bounce Back: Still It Is Time for Quality ETFs?).

FlexShares Quality Dividend Index Fund QDF

The underlying index of the fund, the Northern Trust Quality Dividend Index, is designed to provide exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities, with importance to long-term capital growth and a targeted overall beta that is similar to that of the Northern Trust 1250 Index. The index is selected based on expected dividend payment and fundamental factors.

Barron’s 400 ETF BFOR

As the name suggests, BFOR tracks the performance of the Barron’s 400 Index that looks to select high-performing U.S. stocks based on four fundamental factors — growth, valuation, profitability and cash flow.  

Stocks selected on the basis of strong fundamentals are then screened for certain criteria regarding concentration, market capitalization and liquidity. The eligible stocks are equally weighted in the index that is rebalanced semiannually.

First Trust NASDAQ Rising Dividend Achievers ETF RDVY

This fund provides exposure to 50 U.S. stocks with a history of rising dividend that are expected to continue doing so in the future. In addition, it also screens for stocks with rising earnings per share and cash to debt ratio greater than 50%. This is done by tracking the NASDAQ Rising Dividend Achievers Index (read: 5 Quality Dividend ETFs Crushing the Market on Tax Reform).

First Trust Capital Strength ETF FTCS

The underlying index – the Capital Strength Index – is an equal-dollar weighted index which provides exposure to well-capitalized companies with solid market position based on strong balance sheets, a high degree of liquidity, ability to generate earnings growth & record financial strength & profit growth.

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FT-CAP STR E (FTCS): ETF Research Reports
FT-NDQ RIS DV A (RDVY): ETF Research Reports
ISHARS-MS US QF (QUAL): ETF Research Reports
FLEXS-QLTY DIV (QDF): ETF Research Reports
BARRONS-400 ETF (BFOR): ETF Research Reports
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