Thanks to the last-minute deal and a string of earnings beat,
the stock market is once again hitting multi-year highs.
The surprise taper delay by the Fed in September and growing
speculation of continued 'taper hold' at least for the near term
are also driving markets higher.
Though the U.S. ended its first 16-day shutdown since the mid 90s
and avoided debt default for the time being, economic
uncertainties linger worldwide. This is especially true since a
long-term deal was not reached, thereby raising changes of
another shutdown in mid-January 2014 and a next debt ceiling
debacle in February.
Given this, it seems reasonable to assume that another bout of
volatility may be just around the corner (read:
3 Safe ETFs to Buy in the Next Shutdown
). Further, sluggish U.S. economic data of late such as weak
consumer confidence, uncertain manufacturing sector, and a low
level of job creation, suggests that the bullish run might not
continue for long.
This perception is turning some investors cautious and compelling
them to tilt their portfolios towardsdefensive sectors like
healthcare, consumer staples and utilities.
The Defensive sectors generally act as a safe haven during any
turmoil. . Stocks in these sectors generally provide higher
returns during troubled times (read:
3 Top Ranked ETFs from Red Hot Sectors
Let us have a look at some of these ETFs that can protect
portfolios in sluggish markets and could be a worthwhile for
investors as we move ahead into the New Year (see:
all the Categories ETF here
Vanguard Utilities ETF (
After being stressed by rising interest rate speculations over
the past couple of months, the utility sector is back on track
following the Fed's 'no taper' shocker. Additionally, the sector
has not disappointed this earnings season and is showing
As per the
Zacks Earnings Trends
, utility sector earnings are up 4.1% with earnings beat ratio of
80% so far in Q3 compared to 0.7% decline in Q2. Further, it is
the only sector expected to generate triple-digit earnings growth
in the fourth quarter. The sector is poised to benefit from the
ever-expanding population, which would fuel demand for essential
utility supplies like water, gas and electricity.
One way to play this strong trend in the sector is with VPU. It
is one of the popular and liquid ETFs with AUM of nearly $1.4
billion and average daily volume of 131,000 shares a day. The
fund tracks the MSCI US Investable Market Utilities 25/50 Index,
holding 79 stocks in the basket (read:
Utility ETFs: Winners After the No Taper
More than half of the portfolio is allocated to electric
utilities, closely followed by multi utilities (33%). Gas, water
and other utilities make up for small chunks in the basket. In
terms of individual holdings, the product puts nearly 47% of
total assets in the top 10 holdings, suggesting moderate
concentration. The fund primarily focuses on large caps (69%) and
mid caps (23%) while has a certain tilt toward value stocks.
The ETF charges 14 bps in annual fees. The product added about 5%
over the trailing one-month period and nearly 17% in the
year-to-date time period. It has a decent Zacks ETF Rank of 3 or
'Hold' with a 'Medium' risk outlook.
Health Care Select Sector SPDR Fund (
The healthcare space is outperforming the broad market this year
thanks to strength in biotechnology and pharmaceuticals firms.
This is primarily attributable to increased mergers and
acquisitions, promising new drugs and their approval,
ever-increasing healthcare spending, an insatiable demand for new
drugs, and growing demand in emerging markets.
Investors could tap this growing sector with State Street's XLV,
which provides broad exposure to the healthcare world. The fund
has accumulated nearly $8 billion in AUM and sees heavy volume of
more than 7.5 million shares per day. The ETF has one of the
lowest expense ratios of 0.18%.
Holding 57 securities, the product is heavily concentrated in its
top 10 holdings with Johnson & Johnson (12.76%) and Pfizer
(9.94%) dominating the fund's return. This is a large cap centric
fund. Pharmaceuticals take the top spot at 45.26%, while
biotechnology (18.87%), equipment and supplies (15.71%), and
providers and services (15.51%) round off to the next three spots
Inside Biotech ETFs: Can the Run Continue?
The fund added 4% over the past month and is up 34% year-to-date.
The ETF currently has Zacks ETF rank of 2 or 'Buy' rating with a
'Low' risk outlook.
Guggenheim S&P Equal Weight Consumer Staples ETF
The consumer staples sector appears to be defensive as it
includes a variety of items like food & beverages,
non-durable household goods, hypermarkets and consumer
supercenters that are essential for daily needs. These products
see steady demand even during an economic downturn due to their
low level of correlation with economic cycles.
One great way to play this sector is the RHS. This fund tracks
the S&P Equal Weight Consumer Staples Index, which means that
the fund gives every stock the same weight in the benchmark,
irrespective of market capitalization levels (read:
Overweight These Equal Weight ETFs in Your
The product offers a radically different approach to the space,
as no one firm accounts for more than 3.08% of assets. Though the
fund focuses more on large caps at 80%, it provides a nice mix of
growth, value and blend securities. In terms of industrial
exposure, the ETF has a slight tilt toward food products with
31.71% share, closely followed by beverages (22.44%) and food
& staples retailing (20.68%).
This technique hasn't caught on too much in the staples market,
as the ETF has just $79.3 million in assets and sees about 12,000
shares in volume a day. The expense ratio is a little high at 50
basis points a year. RHS added over 5% over the trailing one
month and is up nearly 29% so far this year. The fund has a Zacks
ETF Rank of 2 or 'Buy' rating with a 'Medium' risk outlook.
GUGG-SP5 EW C S (RHS): ETF Research Reports
VIPERS-UTIL (VPU): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
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