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Trump Rally to Wane? Buy These Quality ETFs

Sanghamitra Saha

The latest streak of gains in the key U.S. indices like the S&P 500 and Dow Jones Industrial Average was as surprising as Trump’s win in the U.S. election. Though the tech-laden Nasdaq-100 could not cherish the rally initially as Trump’s immigration and foreign polices could spell trouble for tech stocks, it eventually bounced back (read: Tech ETFs Rebound: Can the Surge Continue?).

The S&P 500 is near the record high and Dow Jones logged a seven-session rising streak. Reflecting all these gains, the S&P 500-based SPY, Dow Jones-based DIA and Nasdaq-100 based QQQ were up about 4.8%, 5.7% and 3.3% in the last 10 days (as of November 17, 2016), respectively. Now, the million-dollar question is whether the rally has legs (read: Trump Drives Dow to Record High: ETFs in Focus)?

What Do Market Watchers Say?

While some have faith on the rally on the proposed boost in fiscal spending and tax cuts, some believe that the rally will die an early death. Billionaire investor Carl Icahn believes that “the stock-market rally may be overdone.”

If this was not enough, Fed Chair Janet Yellen lately triggered bets over a rate hike in the December meeting. Chances of a December hike is now 95.4%. As a result, the greenback surged to a 13-year high.

The yield on the benchmark U.S. Treasury note jumped to 2.29% on November 17 from 2.22% recorded the day earlier. So, fears of gradual ceases in cheap dollar inflows may hit stocks in the near term. JPMorgan too suggests not to be over emotional on the Trump rally or rather play timely bets like financial stocks.

Some analysts believe that volatility will be the only keyword in the investing world. According to this group, the recent surge is hope-driven and has proven to be a little hasty. “Any market that goes down 5% and up 6% on the same news is inherently unstable”, as per an analyst. Plus, there is still uncertainty over the OPEC output curb deal likely to be clinched this month (read: Oil ETFs Jump on Renewed Hopes of OPEC Cut).

Add Quality to Your Portfolio

In such a scenario, investors can seek safety in high quality stocks and the related ETFs. Quality stocks are generally rich in value characteristics like strong return on equity, low earnings variability, higher free cash margins and low debt-to-equity.

Thanks to these above-average and high quality traits, quality ETFs may go a long way in protecting one’s portfolio in turbulent times.  Below we highlight four such quality ETFs that are poised to be on investors’ radar in the coming days.

iShares Edge MSCI USA Quality Factor QUAL

The fund looks to follow large- and mid-cap U.S. stocks displaying positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage).

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 2.99% annually (as of November 17, 2016).

WisdomTree US Quality Dividend Growth Fund DGRW

The fund gives exposure to both growth and quality factors. The fund yields about 2.21% annually (as of November 17, 2016).

VanEck Vectors Morningstar Wide Moat ETF MOAT

The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages”. As a result, this fund also calls for quality exposure.

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SPDR-DJ IND AVG (DIA): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
WISTR-US QD (DGRW): ETF Research Reports
ISHARS-MS US QF (QUAL): ETF Research Reports
FLEXS-QLTY DIV (QDF): ETF Research Reports
VANECK-MS WD MT (MOAT): ETF Research Reports
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