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Economic Slowdown in 2020? ETF Strategies to Help You

Sanghamitra Saha

Trade war worries may have subsided a bit to start 2020, but fears of a global economic slowdown have returned. In spite of a strong U.S. economy and robust stock markets, more than half of the chief executive officers (CEOs) expect the global economic growth momentum to decelerate this year, per a survey done by PwC and released at the World Economic Forum in Davos, Switzerland.

Among 1,600 CEOs across 83 countries, 53% sees a decline in economic growth in 2020. Just a year ago, 57% expected GDP growth to improve. The latest fear of slowdown also compounded with the International Monetary Fund (IMF) downgrading its global growth forecasts despite the signing of a U.S.-China trade deal and less ambiguity over Brexit.

In the latest of a series of downgrades, the IMF now expects global growth of just 2.9% for 2019. This is lower than its previous 3% estimate, which itself was the lowest figure since the global financial crisis. IMF’s latest prediction for 2020 growth is 3.3%, down from the previous prediction of 3.4%. The U.S. economy is expected to slide to 2% in 2020 from an expected 2.3% growth rate in 2019.

Global markets may remain wobbly in the coming days. Market participants will continue to evaluate the efficacy of the phase-one U.S.-Sino trade deal. Geopolitical tension in the Middle East is still alive. The latest outbreak of China’s coronavirus could also be a drag on the broader market. MSCI Asia Pacific Index might feel a short-term adverse impact from this viral outbreak.

Trade tensions are not fully out of sight with the U.S.-China spat having chances of returning. Against this backdrop, below we highlight a few ETF strategies that can be beneficial in the coming days.

Dividend ETFs Could Be Saviors

Dividends or regular current income could save investors even if there is capital loss. So, one can bank on these high-momentum dividend ETFs like Reality Divcon Leaders Dividend ETF LEAD, Victory Dividend Accelerator ETF VSDA and Invesco International Dividend Achievers ETF PID.

The fund PID gives exposure to companies that have increased their aggregate annual regular cash dividend payments consistently for at least each of the last five consecutive years. It yields a solid 3.88% annually. VSDA looks to tap securities which are forecast to pay out higher dividends. LEAD invests in the largest U.S. companies that have the highest probability of increasing their dividends in the next 12 months (read: 5 Dividend ETFs That Beat S&P 500 in 2019).

Bank on Quality

Quality ETFs are relatively safe and can help investors fight the looming economic slowdown. In this regard, funds like VanEck Vectors Morningstar International Moat ETF MOTI, FlexShares Quality Dividend Index Fund QDF, O'Shares FTSE Europe Quality Dividend ETF OEUR and Invesco S&P 500 Quality ETF SPHQ could be at investors’ disposal (read: Play These ETFs on Visa-Plaid Deal).

Time to Bet on Emerging Markets

Investors should note that Emerging Market and Developing Economies are projected to have grown 3.7% in 2019, and are expected to expand 4.4% in 2020 and 4.6% in 2021, per IMF. Brazil’s economy has seen one of the least slowdowns in 2019 (expected growth is 1.2% from 1.3% in 2018). Brazil is expected to grow 2.2% in 2020 and 2.3% in 2021. This put iShares MSCI Brazil ETF EWZ in a sweet spot.

Investors can bet on emerging Europe ETFs like VanEck Vectors Russia ETF RSX. An oil price recovery is especially great for the oil-importing nation Russia. The Russian economy is expected to log 1.9% growth in 2020 from an expected 2019 growth rate of 1.1% (read: ETFs to Gain & Lose From Higher Oil Price).

Europe Investing Could Be Gainful

Among advanced economies, Euro Area is expected to see an uptick in GDP in 2020 at 1.3% from a 2019 expected growth rate of 1.2%. A one-bp uptick in growth rate is also expected for the U.K. economy at 1.4% for 2020. Emerging and Developing Europe is expected to log a growth rate of 2.6% in 2020 from 1.8% in 2019.

The ECB remains dovish. The Brexit process could see an orderly ending. All these make Europe investing lucrative. SPDR EURO STOXX 50 ETF FEZ and First Trust IPOX Europe Equity Opportunities ETF FPXE are two good picks.