U.S. Markets closed

IMF Cuts Global Growth Outlook: 5 ETF Areas to Bet On

Sweta Killa

Even as the global economy is showing signs of improvement, the International Monetary Fund (IMF) slashed its global growth forecast for this year and the next by 0.1 and 0.2 percentage points, respectively. It warned that the outlook remains sluggish and there are no clear signs of a turning point.
                                            
The IMF now projects global growth to expand 3.3% in 2020 and 3.4% in 2021. The group is now less optimistic about economic recovery than it was few months ago, citing weaknesses in emerging markets, such as India, and growing social unrest around the world. The group is cautious about further trade tensions, as new trade worries could emerge between the United States and the European Union, and the U.S.-China spat could return. Meanwhile, the slowdown in India was sharper than expected amid stress in the nonbank financial sector and a decline in credit growth.

However, the new projections represent an improvement from 2.9% growth projected for 2019. The market sentiment has jumped on an initial trade deal that is expected to improve global manufacturing and trade. Easing of Brexit uncertainty also added to the momentum. Further, global monetary easing policies have been reviving growth in the economies. With all these developments, IMF said global growth may be stabilizing, though at subdued levels (read: 10 Power-Packed ETFs to Buy for 2020).

That said, there are a few areas where investors could stash their money and take advantage of the slowly growing economy. We have highlighted an ETF from these five areas that looks like a compelling pick for 2020 if we go by the IMF forecast.

Low Volatility

These products have the potential to outpace the broader market in the event of a turmoil, providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. While there are several options, iShares Edge MSCI Min Vol USA ETF USMV with AUM of $38.4 billion and average daily volume of 4.4 million shares is the most-popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 10 ETFs That Have Been Investors' Favorites).

Value

Value stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value. These seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payouts offer safety in times of market turbulence. As such, the ultra-popular Vanguard Value ETF VTV seems to be a nice pick. This fund seeks to track the CRSP US Large Cap Value Index, charging investors 4 bps in fees and expenses. It has AUM of $56.4 billion and trades in average daily volume of 1.3 million shares.  VTV has a Zacks ETF Rank #2 with a Medium risk outlook.

Small-Cap

Sentiments have been super bullish as we entered 2020. Trade deal optimism, a dovish Fed and a resilient economy have been the biggest catalysts. While the rally has been broad based, small cap stocks have been outperforming and charging the bulls. More compelling valuation and relative underperformance when compared to the large caps in 2019 have been driving the small-cap space higher (read: 5 Small-Cap ETFs Beating S&P 500 in 2020).

These pint-sized stocks generate most of their revenues from the domestic market and are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, lower interest rates bode well for the small-cap stocks, perking up economic activities and resulting in higher spending, thus boosting domestically focused companies. iShares Core S&P Small-Cap ETF IJR, offering broad exposure to U.S. small-cap stocks, seems a compelling choice. It has AUM of $49.2 billion and trades in heavy volume of 3.2 million shares. The fund charges 7 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

Dividend

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth like Vanguard Dividend Appreciation ETF VIG seem to be good picks. The ETF has AUM of $43.3 billion and trades in volume of 1.1 million shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 7 Dividend ETFs That Offer Growth in 2020).

Defensive

Investors could rotate into defensive sectors like utilities, healthcare and consumer staples, which generally outperform during periods of low growth and high uncertainty. Invesco Defensive Equity ETF DEF seems an excellent choice as it offers exposure to companies having potentially superior risk-return profiles during periods of stock market weakness, while still offering the potential for gains during periods of market strength. The fund has accumulated $292.6 million in its asset base and sees lower volume of 20,000 shares per day on average. It charges 55 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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 >>