The economy started the year on a solid footing. However, January's blowout jobs report, unexpected consumer strength, and persistent inflation challenge the Fed to keep interest rates higher for longer. Although inflation has retreated significantly, it remains elevated enough to erode the spending power of consumers. Prices were 6.4% higher in January than they were a year ago.
Last month, retail sales jumped 3%, overshooting estimates of a 1.9% increase. Such resilience paints a picture that the U.S. economy could defy a deep recession. However, a ‘no pause’ situation from the Fed could trigger a mild economic downturn combined with a modest rise in unemployment in the coming quarters.
Therefore, amid such gloomy times, the best way to profit from the stock market is to load up quality funds with a defensive stance, to what the “Oracle of Omaha” Warren Buffet describes best as being “greedy when others are fearful.”
As of December 31, 2022, Buffett’s holding company Berkshire Hathaway Inc. (BRK-B), owns only two Exchange-Traded Funds (ETFs): Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF Trust (SPY). These fundamentally strong ETFs could help investors ride out market volatility and might be solid buys this year.
Vanguard S&P 500 ETF (VOO)
VOO is an ETF launched and managed by The Vanguard Group, Inc. It offers exposure to stocks of mega and large-cap companies in the U.S. equity market by tracking the S&P 500 Index using the full replication technique.
With $281.08 billion in AUM, VOO’s top holding is Apple Inc. (AAPL), which has a 6.31% weighting in the fund. It is followed by Microsoft Corporation (MSFT) at 5.41% and Amazon.com, Inc. (AMZN) at 2.68%. The fund has a total of 507 holdings, with the top 10 assets comprising 24.86% of AUM.
VOO’s expense ratio is 0.03% is significantly lower than the category average of 0.37%. The fund pays $5.95 per unit annually as dividends, translating to a yield of 1.59% at the current price level. It saw a net inflow of $9.95 billion over the past six months and $23.12 billion over the past year. Its five-year beta is 1.00.
Over the past three months, VOO has gained 3.3% to close the last trading session at $374.22. The fund’s NAV was $374.21 as of February 17, 2023.
VOO’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VOO has an A grade for Trade and a B for Buy & Hold. It ranks #106 of 274 funds in the B-rated Large Cap Blend ETFs category. Click here to see all ratings for VOO.
SPDR S&P 500 ETF Trust (SPY)
SPY is one of the largest and most heavily-traded ETFs launched and managed by State Street Global Advisors, Inc. The fund aims to provide before-expenses investment results that correspond with the price and yield performance of the S&P 500 index. It follows a replication strategy and offers exposure to large-cap U.S. stocks.
As of February 17, the fund’s NAV stands at $407.22. It has an AUM of approximately $373.96 billion. The fund’s expense ratio of 0.09% is lower than the category average of 0.37%.
SPY’s top three holdings are AAPL with a 6.71% weighting, MSFT with a 5.70% weighting, and AMZN with a 2.54% weighting. The fund has a total of 505 holdings, with its top 10 assets comprising 25.61% of its AUM. The fund’s net inflow came in at $5.87 billion over the past year. It has a five-year beta of 1.00.
The ETF has gained 3.3% over the past three months to close the last trading session at $407.26. SPY has a trailing-12-month dividend of $6.32, which yields 1.55% on the current price level. It has a four-year average yield of 1.60%.
SPY’s POWR Ratings reflect its promising prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Trade and a B for Buy & Hold. It is ranked #103 in the same category. To see SPY’s rating for Peer, click here.
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VOO shares were trading at $368.85 per share on Tuesday morning, down $5.37 (-1.43%). Year-to-date, VOO has gained 4.98%, versus a 4.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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