Defensive ETFs to Shield Against the Fiscal Cliff
December 14th, 2012 at 4:00pm by Tom Lydon
The economy and markets are humming along, but potential risks still loom, namely the so-called fiscal cliff. For the more pessimistic investors, it could be time to look over some defensive exchange traded fund options.
While Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., believes the economy’s chances of doing better are “somewhat” higher than before, the fiscal cliff would trigger spending cuts and tax hikes that would drag the economy into recession, Bloomberg reports.
David Rosenberg, chief economist at Gluskin Sheff & Associates, suggests gold miners and utilities, which offer “safety and income at a reasonable price,” to hedge against the potential fallout. Moreover, he recommends investors to look at dividend-paying health-care and consumer-staples stocks that are less susceptible to market cycles. [Some Investors Playing Defense with Utilities, Consumer Staples ETFs]
Gold miner ETFs include:
- Market Vectors Gold Miners ETF (NYSEArca: GDX)
- Market Vectors Junior Gold Miners Fund (NYSEArca: GDXJ)
- MSCI Global Gold Miners Fund (NYSEArca: RING)
- Global X Pure Gold Miners ETF (NYSEArca: GGGG)
Utilities ETFs include:
- SPDR Utilities Select Sector Fund (NYSEArca: XLU): 4.06% yield
- Vanguard Utilities ETF (NYSEArca: VPU): 3.8% yield
- iShares Dow Jones US Utilities Sector Index Fund (NYSEArca: IDU): 3.46% yield
Healthcare ETFs include:
- Health Care Select Sector SPDR Fund (NYSEArca: XLV): 1.92% yield
- Vanguard Health Care Index Fund (NYSEArca: VHT): 1.44% yield
- iShares Dow Jones US Healthcare Sector Index Fund (NYSEArca: IYH): 1.59% yield
Consumer Staples ETFs include:
- Consumer Staples Select Sector SPDR Fund (NYSEArca: XLP): 2.65% yield
- Vanguard Consumer Staples ETF (NYSEArca: VDC): 2.05% yield
- First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG): 0.99% yield
“This is a time to be defensive,” David Levy, chairman of the Jerome Levy Forecasting Center, said in the article. “We are still in a rocky period.”
Levy remains bullish on Treasury bonds as the ultimate safe-haven asset, predicting yields to fall even lower. The benchmark 10-year Treasury bond currently yields 1.62% and the 30-year note yields 2.81%.
Treasury bond ETFs include:
- iShares Barclays 7-10 Year Treasury Bond Fund (NYSEArca: IEF): 1.19% 30-day SEC yield
- iShares Barclays 20 Year Treasury Bond Fund ETF (NYSEArca: TLT): 2.53% 30-day SEC yield
El-Erian advises investors invest in foreign countries that are expanding faster and have strong balance sheets, such as Brazil and Mexico.
For more information on sector funds, visit our sector ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.