The Consumer Price Index (CPI) for December rose 6.5% from a year ago, reflecting that inflation has peaked. However, with signs of continuing rate hikes through 2023 until inflation falls below 2%, a mild U.S. recession might still be on the cards.

The U.S. economy seems to be at crossroads on prospects of a soft landing or tipping into a recession later this year. While unemployment at 3.4% reflects strong resilience, an inverted yield curve suggests a downturn could be a near certainty.

As macroeconomic uncertainties remain, diversification can be an ideal strategy to help investors minimize their portfolio risks. Hence, fundamentally strong ETFs SPDR S&P 500 ETF Trust (SPY), SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) could be wise investments now.

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 10, the fund’s NAV stands at $408.03. It has an AUM of approximately $377.32 billion. The fund’s expense ratio of 0.09% is significantly lower than the category average of 0.37%.

SPY’s top three holdings are Apple Inc. (AAPL) with a 6.59% weighting, Microsoft Corporation (MSFT) with a 5.76% weighting, and Amazon.com, Inc. (AMZN) with a 2.57% weighting.

The fund’s net inflow came in at $5.14 billion over the past six months and $3.49 billion over the past year. It has a five-year monthly beta of 1.00.

The ETF has gained 4.5% over the past month to close the last trading session at $408.04. 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. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SPY has an A grade for Trade and a B for Buy & Hold. It is ranked #102 in the 274-fund A-rated Large Cap Blend ETFs group. To see SPY’s rating for Peer, click here.

SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)

Employing a representative sampling strategy, BIL seeks to track the performance of an index designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to one month and less than three months.

As of February 10, BIL had $24.32 billion in assets under management and a NAV of $91.51. Its gross expense ratio of 0.14% is lower than the category average of 0.15%.

As of November 9, the fund’s top holdings include United States Treasury Bills 0.0% 20-APR-2023 with a 9.98% weight, United States Treasury Bills 0.0% 23-MAR-2023 with a 9.36% weight, and United States Treasury Bills 0.0% 27-APR-2023 with a 7.53% weight.

Over the past year, the fund’s net inflow came in at $8.29 billion. Its net inflow stood at $6.94 billion over the past six months.

BIL has gained marginally over the past year and the past six months to close its last trading session at $91.52. It has a trailing-12-month dividend of $1.55, which yields 1.69% on current prices.

BIL’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

The ETF has a Trade, Buy & Hold, and Peer grade of A. In the 33-ETF A-rated Ultra-Short Term Bonds group, it is ranked #2. Click here to see all POWR Ratings for BIL.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

BlackRock Fund Advisors manages HYG. The fund invests in fixed-income markets of the globally developed region. It invests in U.S. dollar-denominated high-yield corporate bonds with a maturity of at least one year and less than 15 years. The fund seeks to track the performance of the Markit iBoxx USD Liquid High Yield Index.

As of February 10, HYG had $16.53 billion in assets under management and a NAV of $74.88. Its expense ratio of 0.48% compares to the category average of 0.45%. Also, it has a beta of 1.12.

The fund’s top holdings include U.S. Dollar with a 1.72% weight, TransDigm, Inc. 6.25% 15-MAR-2026 with a 0.48% weight, Mozart Debt Merger Sub, Inc. 3.875% 01-APR-2029 with a 0.42% weight, and TIBCO Software Inc. 6.5% 31-MAR-2029 with a 0.39% weight. It has a total of 1,207 holdings.

HYG’s trailing-12-month dividend of $3.97 yields 5.31% on the current price level, while its four-year average dividend yield is 4.91%. Over the past six months, the fund’s net inflow came in at $3.17 billion. It has gained marginally over the past three months to close its last trading session at $74.78.

HYG’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Trade and Buy & Hold. It is ranked first out of 58 ETFs in the A-rated High Yield Bond ETFs group. To see the POWR Ratings of HYG for Peer, click here.

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SPY shares were trading at $411.29 per share on Monday morning, up $3.25 (+0.80%). Year-to-date, SPY has gained 7.55%, versus a % 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. More...

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