Being the latest in the league that was vocal on global growth issues, the World Bank cut its 2016 global growth forecast lately to 2.4% from 2.9% projected in January. The commodity market slump, lackluster demand in advanced economies and frail trade were mainly behind World Bank's pessimism. Prior to this, World Bank slashed its projection for global growth to 2.9% in January from 3.3% estimated last June.
Most Economies Underwent Downgrade
The World Bank expects commodity-exporting emerging economies to log a small growth of 0.4% this year, 1.2 percentage points lower than what was projected in January. The organization believes that these economies are striving to cope with still-low oil prices, metals, and other commodities. Though these commodities have recovered a lot lately, the road ahead is long enough to reach the pre-crisis level.
The U.S. - the otherwise improving developed economy - is expected to see 1.9% growth (down from the prior forecast of 2.7%) in 2016 hurt by lower energy sector spending and subdued export on a higher greenback. The euro zone will likely see 1.6% growth despite significant monetary easing.
IMF Also Cautious on Global Growth
Not only the World Bank, the IMF also reduced its global growth estimate to 3.2% for this year in April. The latest IMF numbers show a reduction of 0.2% from what it projected in January and a cut of 0.4% from the October forecast.
Also, IMF projected that "each percentage point change in China's growth would lower growth in the rest of the region by 0.15-0.30 of a percentage point" and therefore, hinted at 'severe headwinds' in Asia.
ETFs to Play
All in all, investors should be prepared for a muted 2016 as occasional sell-offs are likely to hit the market. So, investors need to be cautious while exposing themselves to the investing world. Below, we highlight a few quality ETFs that could protect one's portfolio irrespective of the market pattern.
iShares Edge MSCI USA Quality Factor ETF (NYSEARCA:QUAL)
The $2.4-million 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).
The 125-stock fund is diversified across sectors with IT, Financials, Healthcare, Consumer Discretionary, and Consumer Staples having a double-digit exposure. The fund charges 15 bps in fees. The fund is up 2.9% so far this year (as of June 7, 2016) and added 1.5% in the last one year.
FlexShares Quality Dividend Index ETF (NYSEARCA:QDF)
The $1.32-billion fund looks to provide exposure to the growth potential of U.S. securities while offering dividends. The 180-stock fund puts about 19.92% focus on the financial sector followed by IT (16.93%), Consumer Discretionary (11.64%), and Healthcare (11.1%). The fund charges 37 bps in fees. It is up 6.3% so far this year (as of June 7, 2016) and added 5.3% in the last one year. The fund yields 2.84% annually (as of June 7, 2016).
SPDR MSCI World Quality Mix ETF (NYSEARCA:QWLD)
The fund looks to track the MSCI World Quality Mix Index to provide exposure to 23 developed economies focusing on matrices like value, low volatility and quality. This $6.3-million ETF comprises 1,055 stocks. Sector-wise, IT, Financials, Healthcare, Consumer Discretionary, and Consumer Staples get maximum exposure.
Despite being a global equity ETF, the U.S. (60.3%) dominates the portfolio followed by Japan (9.09%), the U.K. (7.5%) and Switzerland (5.11%). It charges 30 bps in fees for this exposure. The fund is up 4.2% so far this year but lost about 2.2% in the last one year (as of June 7, 2016).
PowerShares S&P 500 Quality Portfolio ETF (NYSEARCA:SPHQ)
This $985.2-million fund holds 98 stocks in its basket. Industrials, Consumer Discretionary, Healthcare, IT, and Consumer Staples get a double-digit focus in the fund.
The fund charges 29 bps in fees. SPHQ is up 8.47% (as of June 7, 2016) and added 8.15% in the last one year.
iShares MSCI International Developed Quality Factor ETF (NYSEARCA:IQLT)
This $15.4-million fund looks to follow stocks with high return on equity, stable year-over-year earnings growth and low financial leverage. Financials takes one-fourth of the basket followed by Industrials, Consumer Discretionary, and Consumer Staples with the next three spots. The fund charges 30 bps in fees. It is up 3.6% so far this year (as of June 7, 2016) but lost 4.6% in the last one year.
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