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Thanks to solid corporate earnings, the U.S. stock market has showing immense strength with the major bourses lately reaching new highs. But a myriad of hurdles has continued to kept investors jittery (read: ETFs to Buy on Most-Bullish Wall Street Outlook in Two Decades).
This is especially true as the Delta variant of COVID-19 is spreading rapidly across the world, leading to concerns over the sustained global economic recovery. The United States is now averaging more than 100,000 new COVID-19 cases every day, the highest in almost six months. A potential slowdown in China and the crisis in Afghanistan are adding to the chaos.
Additionally, a spate of the latest data including retail sales and homebuilder confidence has been weighing on sentiments. U.S. retail sales fell more than expected in July while homebuilder confidence dropped to a 13-month low driven by higher construction costs and supply shortages.
This has resulted in a flight to defensive sectors like utilities, real estate, healthcare and consumer staples.
Why Defensive Sectors?
Being a low-beta sector, utility is relatively protected from the large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil. Real estate often acts as a safe haven in times of market turbulence and concurrently offers higher returns due to their juicy yields (read: Why REIT ETFs are Beating the Market).
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 economic cycles. It generally acts as a safe haven amid political and economic turmoil.
Given this, we have highlighted one ETF each from these four sectors.
With AUM of $13.6 billion, this fund provides exposure to a small basket of 28 securities by tracking the Utilities Select Sector Index. The fund is heavily concentrated on the top firm at 17% while the other firms hold no more than 8.6% share. Electric utilities takes the top spot in terms of sectors at 63.9%, closely followed by multi utilities (29.6%). The product charges 12 bps in annual fees and sees a heavy volume of around 11.7 million shares on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Will Utility ETFs Keep Gaining on Decent Q2 Earnings Results?).
This fund follows the MSCI US Investable Market Real Estate 25/50 Index and holds 172 stocks in its basket. Specialized REITs take the largest share at 37.5% while residential REITs and industrial REITs round off the top three with double-digit exposure each. Expense ratio comes in at 0.12%. VNQ is the most popular and liquid ETF with AUM of $43.9 billion and an average daily volume of around 4.1 million shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
This fund offers exposure to U.S. healthcare equipment and services, pharmaceuticals and biotechnology companies by tracking the Dow Jones U.S. Health Care Index. It holds 127 stocks with pharma taking the top spot at 26.8%, followed by health care equipment (25%) and biotech (16.4%). The product has amassed nearly $2.9 billion in its asset base, while charging 43 bps in annual fees. It trades in a good volume of around 38,000 shares a day and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
This fund manages a $5.8 billion asset base and has exposure to a basket of 97 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 123,000 shares. The product is widely spread across household products, soft drinks, hypermarkets & supercenters, and packaged foods & meat that make up for a double-digit allocation each. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Consumer Staples ETF Hits New 52-Week High).
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Climb the "Wall of Worry" With These ETFs
Thanks to solid corporate earnings, the U.S. stock market has showing immense strength with the major bourses lately reaching new highs. But a myriad of hurdles has continued to kept investors jittery (read: ETFs to Buy on Most-Bullish Wall Street Outlook in Two Decades).
This is especially true as the Delta variant of COVID-19 is spreading rapidly across the world, leading to concerns over the sustained global economic recovery. The United States is now averaging more than 100,000 new COVID-19 cases every day, the highest in almost six months. A potential slowdown in China and the crisis in Afghanistan are adding to the chaos.
Additionally, a spate of the latest data including retail sales and homebuilder confidence has been weighing on sentiments. U.S. retail sales fell more than expected in July while homebuilder confidence dropped to a 13-month low driven by higher construction costs and supply shortages.
This has resulted in a flight to defensive sectors like utilities, real estate, healthcare and consumer staples.
Why Defensive Sectors?
Being a low-beta sector, utility is relatively protected from the large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil. Real estate often acts as a safe haven in times of market turbulence and concurrently offers higher returns due to their juicy yields (read: Why REIT ETFs are Beating the Market).
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 economic cycles. It generally acts as a safe haven amid political and economic turmoil.
Given this, we have highlighted one ETF each from these four sectors.
Utilities Select Sector SPDR (XLU - Free Report)
With AUM of $13.6 billion, this fund provides exposure to a small basket of 28 securities by tracking the Utilities Select Sector Index. The fund is heavily concentrated on the top firm at 17% while the other firms hold no more than 8.6% share. Electric utilities takes the top spot in terms of sectors at 63.9%, closely followed by multi utilities (29.6%). The product charges 12 bps in annual fees and sees a heavy volume of around 11.7 million shares on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Will Utility ETFs Keep Gaining on Decent Q2 Earnings Results?).
Vanguard Real Estate ETF (VNQ - Free Report)
This fund follows the MSCI US Investable Market Real Estate 25/50 Index and holds 172 stocks in its basket. Specialized REITs take the largest share at 37.5% while residential REITs and industrial REITs round off the top three with double-digit exposure each. Expense ratio comes in at 0.12%. VNQ is the most popular and liquid ETF with AUM of $43.9 billion and an average daily volume of around 4.1 million shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares U.S. Healthcare ETF (IYH - Free Report)
This fund offers exposure to U.S. healthcare equipment and services, pharmaceuticals and biotechnology companies by tracking the Dow Jones U.S. Health Care Index. It holds 127 stocks with pharma taking the top spot at 26.8%, followed by health care equipment (25%) and biotech (16.4%). The product has amassed nearly $2.9 billion in its asset base, while charging 43 bps in annual fees. It trades in a good volume of around 38,000 shares a day and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
Vanguard Consumer Staples ETF (VDC - Free Report)
This fund manages a $5.8 billion asset base and has exposure to a basket of 97 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 123,000 shares. The product is widely spread across household products, soft drinks, hypermarkets & supercenters, and packaged foods & meat that make up for a double-digit allocation each. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Consumer Staples ETF Hits New 52-Week High).