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Here's Why Quality ETFs Can be Added to Portfolio Now

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Investors are navigating a highly volatile environment as the external factors continue to weigh on. The ongoing Russia-Ukraine geopolitical crisis disturbing supply-chain distribution, surging inflation levels and the hawkish Federal Reserve to bring back the inflation levels to its target range of 2%, are all adding to the market uncertainty.

These factors have built tensions among investors who are fearing that the U.S. economy might slip into recession. JPMorgan (JPM) CEO Jamie Dimon also mentioned that he sees an economic hurricane to hit soon. He also mentioned to analysts and investors at a financial conference that “You better brace yourself. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet,” according to a CNBC article.

Investors willing to sail through the current market turbulences can consider iShares MSCI USA Quality Factor ETF (QUAL), Invesco S&P 500 Quality ETF (SPHQ), FlexShares Quality Dividend Index Fund (QDF), SPDR MSCI USA StrategicFactors ETF (QUS) and Barron's 400 ETF (BFOR).

Dimon is concerned about the Russia-Ukraine conflict already escalating essential commodity prices, including food and oil, per a CNBC article. This can affect the U.S. economic health and its recovery from the pandemic lows.

Oil prices are surging amid the Russia-Ukraine geopolitical crisis. The European Union leaders finally agreed on an embargo to restrict 90% of the Russian crude by the end of 2022. The sanctions will immediately impose a ban on 75% of the Russian oil imports.

The EU’s oil embargo can induce a sharp rally in oil prices to increase the burden on the already tight oil supplies. U.S. gasoline demand is also soon going to shoot up as the Memorial Day weekend marks the beginning of the U.S. summer driving season. According to SPI Asset Management managing partner Stephen Innes, "Oil prices are supported as gasoline markets remain tight amid solid demand heading into the peak U.S. driving season. Refineries are typically in ramp-up mode to feed U.S. drivers' unquenching thirst at the pump," as mentioned in a Reuters article.

Jamie Dimon is also unnerved by the Federal Reserve’s impending quantitative tightening program this month. The central bank will start shrinking its nearly $9-trillion worth of balance sheet (per a CNBC article).

The U.S. consumers are clearly feeling the pinch of persistently high inflation levels and the Federal Reserve’s hawkish stance on the interest rate hike. Consequently, the Conference Board's measure of consumer confidence index slipped to 106.4 in May 2022 from an upwardly revised reading of 108.6 in April. Notably, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020 but surpassed its pandemic lows.

Quality ETFs Worth a Look

Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and healthy margins. These stocks also have a track record of stable or rising sales and earnings growth. In comparison to plain vanilla funds, these products help lower volatility and perform rather well during market uncertainties. Also, academic research proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.

Against such a backdrop, we highlighted five ETFs targeting this niche strategy. These could enjoy smooth trading and generate market-beating returns in the current market scenario.

iShares MSCI USA Quality Factor ETF QUAL

iShares MSCI USA Quality Factor ETF provides exposure to the large- and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index (read: 5 Safe Investing Zones &Their ETFs to Escape Market Rout).

Expense Ratio: 0.15%

AUM: $21.02 billion

Invesco S&P 500 Quality ETF (SPHQ)

Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of S&P 500 stocks with the highest-quality score based on three fundamental measures, namely, the return on equity, accruals ratio and the financial leverage ratio.

Expense Ratio: 0.15%

AUM: $3.69 billion

FlexShares Quality Dividend Index Fund QDF

FlexShares Quality Dividend Index Fund seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend Index (read: Best ETFs for High Inflation and Rising Rates).

Expense Ratio: 0.37%

AUM: $1.65 billion

SPDR MSCI USA StrategicFactors ETF QUS

SPDR MSCI USA StrategicFactors ETF offers exposure to the stocks that combine value, low volatility and quality-factor strategies. This is done by tracking the MSCI USA Factor Mix A-Series Capped Index (read: Best ETF Investment Strategies for Q2 2022)

Expense Ratio: 0.15%

AUM: $874.4 million

Barron's 400 ETF BFOR

Barron's 400 ETF seeks investment results that generally correspond, before fees and expenses, to the performance of the Barron's 400 Index.

Total Operating Expenses: 0.65%

AUM: $136.6 million


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iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
 
FlexShares Quality Dividend ETF (QDF): ETF Research Reports
 
BARRONS400 ETF (BFOR): ETF Research Reports
 
SPDR MSCI USA StrategicFactors ETF (QUS): ETF Research Reports
 
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