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Wall Street has been seeing wild swings this month as inflationary fears and the rapidly spreading Omicron variant of the COVID-19 has kept investors’ jittery.
While most of the segments across the board have declined this month, a few are still in green with most of them from the defensive sectors like utilities, healthcare and consumer staples. These ETFs — iShares North American Tech-Multimedia Networking ETF , iShares U.S. Healthcare Providers ETF (IHF - Free Report) , iShares U.S. Consumer Goods ETF (IYK - Free Report) , First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) , and Utilities Select Sector SPDR (XLU - Free Report) — have gained over the past month and might continue their trend if sentoments remain the same.
Why Defensive?
Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or a safe haven amid economic or political turmoil. Real estate also often acts as a safe haven in times of market turbulence and concurrently offers higher returns due to their juicy yields.
Healthcare, which generally outperforms during periods of low growth and high uncertainty, garnered investors’ interest due its non-cyclical nature. Being defensive in nature, the consumer staples sector also sees steady demand in the event of an economic downturn due to its low level of correlation with the economic cycles. It generally acts as a safe haven amid political and economic turmoil (read: 5 Defensive ETF Bets as Omicron Enters the United States).
Dividend investing also gets a boost as these are major sources of consistent income for investors in any type of market. The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile amid large swings in stock prices.
Headwinds Plauging Stock Market
Prices for almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. This is especially true as the consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%. The pandemic-related supply shortages and continued strength in consumer demand continued to push the prices higher (read: 5 ETFs Benefiting From High Inflation).
Meanwhile, a latest study warned that the rapidly spreading Omicron was five times more likely to reinfect people than its predecessor, Delta. Additionally, European countries geared up for further travel and social restrictions. This has triggered major routs in the final month of the year due to worries about the strain’s impact on global economic recovery.
The losses were also backed by year-end tax selling and the simultaneous expiration of stock options, stock index futures and index options contracts (known as triple witching).
Further, the Fed’s more aggressive unwinding of its pandemic-era monthly bond buying led to a selloff in growth stocks. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November.
ETFs in Focus
We have profiled the above-mentioned ETFs in detail below:
iShares North American Tech-Multimedia Networking ETF — Up 4.9%
iShares North American Tech-Multimedia Networking ETF provides exposure to telecom equipment, data networking and wireless equipment companies by tracking the S&P North American Technology-Multimedia Networking Index. It holds 22 securities in its basket.
iShares North American Tech-Multimedia Networking ETF has accumulated $140.2 million in its asset base and charges 43 bps in annual fees. The product sees a lower volume of around 15,000 shares a day and carries a Zacks ETF Rank #2 with a High risk outlook.
iShares U.S. Healthcare Providers ETF (IHF - Free Report) – Up 4.7%
iShares U.S. Healthcare Providers ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 71 securities in its basket.
iShares U.S. Healthcare Providers ETF has amassed $1.3 billion in its asset base, while volume is light at about 14,000 shares per day, on average. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares U.S. Consumer Goods ETF (IYK - Free Report) – Up 4.7%
iShares U.S. Consumer Goods ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 54 stocks in its basket with key holdings in food beverage tobacco, and household & personal products.
iShares U.S. Consumer Goods ETF has amassed $728 million in its asset base while trades in a volume of about 13,000 shares. It charges 41 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium risk outlook.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) – Up 4.4%
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and dividend sustainability by tracking the Morningstar Dividend Leaders Index. It holds 100 stocks in its basket with key holdings in healthcare, communication services, consumer staples and utilities (read: Buy These Dividend ETFs to Beat Inflation & Omicron in 2022).
With AUM of $1.7 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and trades in a solid volume of about 127,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. It follows the Utilities Select Sector Index, holding 28 stocks in its basket. Electric utilities takes the top spot in terms of sectors at 64.4%, closely followed by multi utilities (29.3%).
With AUM of $13 billion, Utilities Select Sector SPDR charges 12 bps in annual fees and sees a heavy volume of around 12.3 million shares on average. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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5 Best-Performing ETFs of December
Wall Street has been seeing wild swings this month as inflationary fears and the rapidly spreading Omicron variant of the COVID-19 has kept investors’ jittery.
While most of the segments across the board have declined this month, a few are still in green with most of them from the defensive sectors like utilities, healthcare and consumer staples. These ETFs — iShares North American Tech-Multimedia Networking ETF , iShares U.S. Healthcare Providers ETF (IHF - Free Report) , iShares U.S. Consumer Goods ETF (IYK - Free Report) , First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) , and Utilities Select Sector SPDR (XLU - Free Report) — have gained over the past month and might continue their trend if sentoments remain the same.
Why Defensive?
Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or a safe haven amid economic or political turmoil. Real estate also often acts as a safe haven in times of market turbulence and concurrently offers higher returns due to their juicy yields.
Healthcare, which generally outperforms during periods of low growth and high uncertainty, garnered investors’ interest due its non-cyclical nature. Being defensive in nature, the consumer staples sector also sees steady demand in the event of an economic downturn due to its low level of correlation with the economic cycles. It generally acts as a safe haven amid political and economic turmoil (read: 5 Defensive ETF Bets as Omicron Enters the United States).
Dividend investing also gets a boost as these are major sources of consistent income for investors in any type of market. The dividend-focused products offer safety through payouts, and stability in the form of mature companies that are less volatile amid large swings in stock prices.
Headwinds Plauging Stock Market
Prices for almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. This is especially true as the consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%. The pandemic-related supply shortages and continued strength in consumer demand continued to push the prices higher (read: 5 ETFs Benefiting From High Inflation).
Meanwhile, a latest study warned that the rapidly spreading Omicron was five times more likely to reinfect people than its predecessor, Delta. Additionally, European countries geared up for further travel and social restrictions. This has triggered major routs in the final month of the year due to worries about the strain’s impact on global economic recovery.
The losses were also backed by year-end tax selling and the simultaneous expiration of stock options, stock index futures and index options contracts (known as triple witching).
Further, the Fed’s more aggressive unwinding of its pandemic-era monthly bond buying led to a selloff in growth stocks. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November.
ETFs in Focus
We have profiled the above-mentioned ETFs in detail below:
iShares North American Tech-Multimedia Networking ETF — Up 4.9%
iShares North American Tech-Multimedia Networking ETF provides exposure to telecom equipment, data networking and wireless equipment companies by tracking the S&P North American Technology-Multimedia Networking Index. It holds 22 securities in its basket.
iShares North American Tech-Multimedia Networking ETF has accumulated $140.2 million in its asset base and charges 43 bps in annual fees. The product sees a lower volume of around 15,000 shares a day and carries a Zacks ETF Rank #2 with a High risk outlook.
iShares U.S. Healthcare Providers ETF (IHF - Free Report) – Up 4.7%
iShares U.S. Healthcare Providers ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 71 securities in its basket.
iShares U.S. Healthcare Providers ETF has amassed $1.3 billion in its asset base, while volume is light at about 14,000 shares per day, on average. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares U.S. Consumer Goods ETF (IYK - Free Report) – Up 4.7%
iShares U.S. Consumer Goods ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 54 stocks in its basket with key holdings in food beverage tobacco, and household & personal products.
iShares U.S. Consumer Goods ETF has amassed $728 million in its asset base while trades in a volume of about 13,000 shares. It charges 41 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium risk outlook.
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) – Up 4.4%
First Trust Morningstar Dividend Leaders Index Fund offers exposure to stocks that have shown the highest dividend consistency and dividend sustainability by tracking the Morningstar Dividend Leaders Index. It holds 100 stocks in its basket with key holdings in healthcare, communication services, consumer staples and utilities (read: Buy These Dividend ETFs to Beat Inflation & Omicron in 2022).
With AUM of $1.7 billion, First Trust Morningstar Dividend Leaders Index Fund charges 45 bps in annual fees from investors and trades in a solid volume of about 127,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Utilities Select Sector SPDR (XLU - Free Report) – Up 4%
Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. It follows the Utilities Select Sector Index, holding 28 stocks in its basket. Electric utilities takes the top spot in terms of sectors at 64.4%, closely followed by multi utilities (29.3%).
With AUM of $13 billion, Utilities Select Sector SPDR charges 12 bps in annual fees and sees a heavy volume of around 12.3 million shares on average. It has a Zacks ETF Rank #3 with a Medium risk outlook.