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IMF Cuts Global Growth Outlook: Bet on 5 Quality ETFs

Sanghamitra Saha

The International Monetary Fund (IMF) has forecast the global growth of 3.5% for this and 3.6% for the next year. The forecast fell by 0.2 percentage points and 0.1 percentage point from the October report (see: all the World ETFs here).     

At the World Economic Forum in Davos, the IMF’s Managing Director Christine Lagarde indicated that the global economy is likely to slow down this year after two solid years of expansion. This year, the economy is carrying more downside risks.

In October too, the IMF cut its global growth forecasts by 0.2 percentage points from the April report. That time the organization pointed at U.S.-Sino trade policy concerns and import tariffs as the primary concerns.

However, the latest revision reflects the ongoing weakness in the German auto sector due to new fuel emission standards and subdued domestic demand in Italy after recent sovereign and financial risks, as noted by CNBC.

Worsening sentiment in the global financial markets and economic shrinkage in Turkey have also been taken into account this time around. The current partial government shutdown in the United States also acts as "downside risks" for the global economy.

Inside the Slowdown

In fact, slowdown in the developed economies have been more frequent than previously deemed and is likely to log a 2% growth rate this year. IMF also cut economic growth projections for emerging markets from 4.6% in 2018 to 4.5% in 2019.

The IMF expects China’s economy — the world's second biggest — to expand 6.2% this year, less than 6.6% in 2018. Eurozone forecasts fell by 0.2 percentage points to 1.6% for 2019. The U.S. growth will slow to 2.5% in 2019 and to 1.9% in 2020 due to rising rates, trade war and the unwinding of tax cuts. The IMF also forecast a weaker outlook for commodities prices and guided metals prices to decline 7.4% year over year in 2019.

ETF Picks

Given this, we highlight a few ETF options that are relatively safe and can help investors to fight the looming economic slowdown.

VanEck Vectors Morningstar International Moat ETF MOTI

The underlying Morningstar Global ex-US Moat Focus Index tracks the overall performance of 50 attractively priced companies outside the United States with sustainable competitive advantages. As a result, this fund also calls for quality exposure. The fund charges 56 bps in fees.

FlexShares Quality Dividend Index ETF QDF

The fund looks to provide exposure to the growth potential of U.S. securities while offering dividends. The fund yields about 4.04% annually (as of Jan 18, 2019) (read: Why You Should Buy High Quality ETFs for 2019).

Invesco S&P SmallCap Quality ETF XSHQ

The underlying SmallCap 600 Quality Index is composed of 120 securities in the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio. It yields 1.06% annually and charges 29 bps in fees.

SPDR MSCI Emerging Markets StrategicFactors ETF QEMM

The underlying MSCI Emerging Markets (EM) Factor Mix A-Series Index captures large and mid-cap representation across 21 emerging markets countries and aims to represent the performance of value, low volatility and quality factor strategies. It charges 30 bps in fees.

O'Shares FTSE Europe Quality Dividend ETF OEUR

The underlying FTSE Developed Europe Qual/Vol/Yield Factor 5% Capped Index measures the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe. It yields 3.33% annually and charges 48 bps in fees (read: 5 Europe ETFs With Great ESG Scores).

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