In the financial markets, the term overbought can be
off-putting to some investors. To some, learning that a stock,
commodity or ETF is overbought could mean that security has run
to levels not justified by the underlying fundamentals.
Conversely, simply because a security is overbought does not
mean an imminent decline is in the offing. Take the examples of
members of the Dow Jones Industrial Average
Two weeks ago, stocks such as International Business Machines
), McDonalds' (NYSE:
) and Travelers (NYSE:
) were deemed overbought. Yet, all have kept going up, helping
the Dow to a record high in the process.
That is a simple way of saying that simply because a security
is overbought investors do not need to ignore it until it becomes
oversold. A screen for
with relative strength index readings of 70 or higher trading
within five percent or less of their 52-week highs was
40 funds showed up
, but some are worth nibbling at right now.
First Trust Consumer Staples AlphaDEX Fund (NYSE:
) Simply put,
2013 has been a banner year thus far for the
. A year-to-date gain of better than 11 percent for the Consumer
Staples Select Sector SPDR (NYSE:
) proves as much.
As impressive as XLP has been, the First Trust Consumer
Staples AlphaDEX Fund has been even better with a 12.5 percent
gain. The reasons for this outperformance are easy to identify.
For starters, is not as heavily allocated to slow-moving, low
beta names such as Procter & Gamble (NYSE:
) and Coca-Cola (NYSE:
) as XLP is. In fact, Coke is not even a member of FXG's lineup
and P&G represents less than one percent of the ETF's
What that means is FXG is more biased toward some of the more
volatile staples names such as Safeway (NYSE:
) and Green Mountain Coffee (NASDAQ:
Of course that means FXG is more volatile than XLP, a fact
proven by FXG's three-year standard deviation being 250 basis
points above that of the
S&P 500 Consumer Staples Index
. However, in an environment where staples are a leadership
group, FXG is ideally situated to continue to the upside.
Guggenheim Defensive Equity ETF (NYSE:
) Maybe it is because the Guggenheim Defensive Equity ETF has
just over $82 million in assets under management or maybe it is
because the ETF trades an average of less than 31,000 shares per
day that this fund does not garner more attention. That is a
shame because DEF is up more than 10 percent this year.
What DEF really needs is a name to change so it can be
recognized as a participant in the
low volatility ETF craze
. After all, this is a legitimate "low vol" ETF.
DEF's beta is just 0.55 against the S&P 500 with a
standard deviation 560 basis below that of the benchmark U.S.
according to Guggenheim data
. Not to mention, utilities and consumer staples combine for over
48 percent of DEF's sector weight.
Investors will also want to note DEF is not as boring as the
aforementioned traits imply as the fund does offer decent
international exposure as well. Three of DEF's top-20 holdings
are international stocks. To DEF's credit, the fund does a decent
job of mixing its non-U.S. exposure among developed and emerging
For more on ETFs, click
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