Oil is in rally mode. Broad U.S. equity benchmarks hit intraday all-time highs on Thursday. Nearly 40 exchange traded funds also hit record highs yesterday.
One of Thursday’s members of the ETF all-time high club was the Guggenheim Defensive Equity Index ETF (NYSEArca: DEF). Considering its name, it is arguably an anomaly that DEF has been consistently printing record highs in recent weeks. Upon deeper examination, it is clear that is not ultra-defensive.
DEF, which charges 0.65% per year, tracks the Sabrient Defensive Equity Index. That index allows for the inclusion of American depositary receipts, giving the ETF some international exposure as well. A fair amount of the ETF’s 103 holdings, none of which account for more than 1.97% of the fund’s weight, are emerging markets stocks. [New Highs for Defensive ETF]
Roughly 10% of DEF’s holdings are emerging markets stocks, including four of the ETF’s top 10 holdings. Three of those four are Chinese stocks, helping explain DEF’s recent bullishness and all three reside in the iShares China Large-Cap ETF (NYSEArca: FXI). FXI’s 20.6% gain over the past month has helped drag DEF higher by 2.5% over the same period. [China ETF’s Still Attractive]
Even with its decent international exposure, which also includes ex-U.S. developed markets, DEF does have many of the trimmings conservative, defensive investors are looking for. DEF’s largest sector weight is 27.7% to financial services, but the ETF gets highly defensive from there as utilities, telecom and consumer staples are the fund’s next three sector allocations, combining for about 48% of the ETF’s weight.
That sector lineup has changed significantly from August when we last highlighted DEF. At that time, the ETF’s allocation to the energy sector was north of 44%. Today, energy is merely DEF’s seventh-largest sector weight at 3.9%, according to Guggenheim data.
Those conservative sector exposures give DEF a standard deviation of 8.37%, or 120 basis points below the three-year standard deviation on the S&P 500. Interestingly, investors do not have to pay up for the privilege of paying defense with DEF. The ETF’s P/E ratio is 17.7 while the P/E ratio on the S&P 500 is closer to 20.
Conservative sector posturing gives DEF a trailing 12-month dividend yield of 2.51%, 60 basis points above the S&P 500 and 55 basis points above the yield on 10-year U.S. Treasurys.
Guggenheim Defensive Equity ETF
