Some investors are favoring sector ETFs tracking utilities and consumer staples to play defense and ride out fiscal cliff negotiations.
Utilities and consumer staples are known for their ability to weather rocky markets while also providing respectable dividend yields. [A Trio of Sector ETFs Yielding Over 3%]
However, utilities ETFs sold off hard in early November with some analysts blaming the pullback on income investors dumping the sector on expectations dividend taxes will rise next year following the re-election of President Barack Obama. [Dividend Hunters Pounce on Beaten-Down Utilities ETFs]
Consumer staples are another defensive sector since consumers need to buy household items like toilet paper and cleaning supplies, for example, even in a slower economy. [ETFs for the Fiscal Cliff: Dividends, Consumer Staples and Munis]
From a technical perspective, Tarquin Coe at Investors Intelligence recently advised newsletter clients to purchase ETFs tracking consumer staples and utilities.
He notes Utilities Select Sector SPDR (NYSEArca: XLU) has rallied from rising channel support established during a three-year uptrend.
“That trend looks to be reasserting and should enable a visit to the 2012 high,” Coe wrote on the utilities ETF. “The relative chart versus the S&P 500 is moving up from the lower end of its three year range. That equates to good relative upside potential, with limited room for underperformance. It is a defensive area and has a present yield of 3.88%.”
He also likes Consumer Staples Select Sector SPDR (NYSEArca: XLP), which has been outperforming the general market since mid-September. [Going International with a Consumer Staples ETF]
In mid-November, the consumer staples ETF rallied after finding support at the 200-day moving average. “The subsequent bounce has reasserted the primary uptrend and a break of the September high of $36.59 looks likely over the next couple of weeks,” Coe said.
Utilities Select Sector SPDR