In an environment of widespread recession expectations and uncertainty in the stock market, investing in ETFs with a diversified portfolio offering exposure to a wide range of securities could be ideal. Therefore, fundamentally strong dividend ETFs Invesco Total Return Bond (GTO), iShares Core Conservative Allocation (AOK) and First Trust NASDAQ Clean Edge Smart Grid Infrastructure (GRID) could help investors hedge their portfolios. Continue reading.
After last month’s turmoil in the banking sector, heightened fears of recession could keep the stock market under pressure in the near term. However, investing in a diversified portfolio of ETFs during an economic downturn can help mitigate risk, minimize costs, and maintain liquidity, making it a solid investment strategy for many investors.
Therefore, I think investors could protect their portfolios against the economic downturn by adding the best ETFs: Invesco Total Return Bond ETF (GTO), iShares Core Conservative Allocation ETF (ALL RIGHT) and First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GATE).
These ETFs pay stable dividends and their diversified holdings could help investors realize gains even in the face of uncertainty.
The consumer price index (CPI) fell in March for the ninth consecutive month. According to the Bureau of Labor Statistics, prices increased 5% for the 12 months ending March, compared to 6% in February. The annual CPI plunged to its lowest level since May 2021.
However, inflation levels remain high and the US central bank is trying to bring it back to its 2% target. Fed funds futures show the odds are in favor of a 25 basis point rate hike in May 2023.
As a result, US stocks decreases Wednesday as investors weighed worries about a coming recession. Additionally, the sudden collapse of the US banking sector has wreaked havoc on the global financial market. These bankruptcies were the largest bank failures in the United States since 2008.
Moreover, March meeting minutes of the Federal Open Market Committee included a presentation from staff members on the potential repercussions of the failure of Silicon Valley Bank and other turmoil in the financial sector that began in early March.
While Vice President for Oversight Michael Barr said the banking sector “is strong and resilient,” staff economists said the economy would take a hit.
Let’s take a look at the ETFs discussed above:
Invesco Total Return Bond ETF (GTO)
GTO is an actively managed fund that invests in debt securities, including corporate debt securities, asset-backed loans, mortgage-backed securities, bank loans, municipal bonds and sovereign debt .
Since APRIL 11, 2023, the main holdings of the fund include the CBOT 2 Year US Treasury Note Future with a weighting of 10.52%, the United States Treasury Note/Bond 3.63% as of 03/31/2028 with a weighting of 8.15% and the United States Treasury Note/ Bond 3.50% on 02/15/2033 with a weighting of 7.27% lester.
GTO has $950.40 million in assets under management. Its fee rate is 0.50%. Its net asset value stands at $47.43 as of April 12. He has a beta of 0.22.
GTO’s annual dividend rate of $1.79 yields 3.78% on the current price level. Its dividend payouts have grown at a CAGR of 5% over the past three years and at a CAGR of 7% over the past five years. The fund has a four-year average return of 3.45%.
The ETF has gained 2.3% year-to-date to close its last trading session at $47.40. Its fund flow was $142.71 million in the past year and $51.80 million in the past month.
GTO’s strong fundamentals are reflected in its POWR Rankings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GTO has an A rating for Trade and Buy & Hold and a B for Peer. In the 82-ETF rated B Diversified Portfolio ETF group, he is ranked #4.
Click here to see POWR ratings for GTO.
iShares Core Conservative Allocation ETF (ALL RIGHT)
AOK is a fund of funds and pursues its investment objective by investing primarily in underlying funds which themselves seek investment results consistent with their own respective underlying indices. The index measures the performance of S&P Dow Jones Indices LLC’s proprietary allocation model.
As of April 12, AOK’s top holdings included: iShares Core Total USD Bond Market ETF (IUSB), which represents 58.53% of the portfolio, iShares Core S&P 500 ETF (IVV), with a weighting of 16.25%, while iShares Core MSCI International Developed Markets ETF (IDEV) represents 10.06% of the fund, and iShares Core International Aggregate Bond ETF (IAGG) represents 9.87% of the weight of the fund.
The fund has a NAV of $35.03 to April 12, t. Its total expense ratio of 0.15% is significantly below the category average of 0.83%. It has $706.80 million in assets under management.
The fund’s annual dividend of $0.81 yields 2.31% at current prices. Its dividend payouts have grown at a CAGR of 2.8% over the past five years. The fund has a four-year average return of 2.19%.
AOK’s cash flow was $4.97 million over the past month. It gained 2.9% in the past month and 8.2% in the past six months to close its last trading session at $35.04. It has a beta of 0.38.
This promising outlook is reflected in AOK’s POWR ratings. The ETF has an overall A rating, which equates to a Strong Buy on our proprietary rating system.
AOK has an A rating for Trade, Buy & Hold and Peer. It is ranked #5 in the same group.
You can access AOK’s notes here.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GATE)
GRID focuses on companies committed to the “smart grid” movement, which seeks to modernize the US electrical grid with 21st century technologies.
Since April 11, GRID main holdings include National Grid plc (of) with 8.85% by weight, followed by ABB Ltd. (ABBN) with 8.05%, Schneider Electric SE (They are) with 7.84%, and Eaton Corporation, PLC (AND N) with 7.18%.
Its net asset value stands at 95.43 as of April 12. The fund has an AUM of $694.35 million. GRID has an expense ratio of 0.58%.
GRID pays out $1.05 a year in dividends to its investors, earning 1.10% on the prevailing market price. Its average return over four years is 0.95%.
Its fund flow amounted to $21.91 million over the past six months. GRID has returned 30.2% over the past six months and 10.2% since the start of the year to close the last trading session at $96.09.
GRID’s POWR ratings reflect this promising outlook. The fund has an overall rating of A, which equates to a strong buy according to our proprietary rating system.
It also has an A rating for Trade, Buy & Hold and Peer. GRID is ranked #6 in the same group.
To see the POWR ratings for GRID, Click here.
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GTO shares were unchanged in premarket trading on Thursday. Year-to-date, GTO has gained 3.03%, versus a 7.11% rise in the benchmark S&P 500 over the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and her passion for writing made Kritika an analyst and financial journalist. She earned her Bachelor of Commerce degree and is currently pursuing the CFA program. With its fundamental approach, it aims to help investors identify untapped investment opportunities.
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