The markets and exchange traded funds (ETFs) have been pushing upward, and defensive sectors been leading the pack. Let’s take a look at the types of defensive plays offered in the world of ETFs.
Defensive sectors have led the market over the last few weeks, remarks Gary Gordon for TheStreet, although, it might be because of year-end yield harvesting or efforts to combine cash-flow ETFs with growth ETFs. Among some of the top ETFs leading us out of 2009 include:
- Utilities Select Sector SPDR (NYSEArca: XLU)
- iShares Dow Jones U.S. Telecom (NYSEArca: IYZ)
Additionally, semiconductors and agribusiness are still performing remarkably well.
- SPDR S&P Semiconductor (NYSEArca: XSD)
- Market Vectors Agribusiness ETF (NYSEArca: MOO)
According to Gordon, the U.S. dollar carry trade, or “risk trade,” has a little more juice left to be squeezed out of it for these reasons:
- Government policy. “Risk trade” is the world’s belief that the U.S. interest rates will remain at practically nothing while the dollar remains weak. The U.S. government currently hasn’t shown any initiative in strengthening the dollar, and policies like health care reform, fiscal stimulus and the Fed’s reluctance to change rates have all kept the dollar from appreciating.
- Advisor strategy. Gordon has increased his exposure to utilities and others are doing the same. One ETF-only advisor specifically noted positions in technology, telecoms and utilities because of the prospect of growth with stable cash flows. [An ETF to invest in the “smart-grid” plan.]
- The U.S. dollar. The PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP) may have gained recently; however, investors should know that since March, UUP mostly finished every month lower than the month before it. A true trend reversal may need something more substantial. [Gains in the dollar.]
These are some ETFs that help an investor interested in capitalizing on the carry-trade. [Playing the carry-trade with ETFs.]
- PowerShares DB G 10 Currency Harvest (NYSEArca: DBV)
- iPath Optimized Currency Carry ETN (NYSEArca: ICI)
Max Chen contributed to this article.