Defensive Consumer Sector ETFs for a Volatile Year | ETF Trends

In a volatile market environment, investors may stick to defensive sector-related exchange traded funds that could do well in most economic conditions.

However, HSBC recently argued that investors should stick to consumer staple stocks due to potential uncertainty in the pharma space, reports Julie Verhage for Bloomberg.

“In a world where global growth remains low and HSBC forecasts lower bond yields–10 year U.S. Treasury yield at 1.5 percent and German Bunds [at]0.2 percent for end 2016–these sectors [healthcare and staples]are likely to continue to command a premium,” HSBC analysts led by Ben Laidler said in a note.

Specifically, HSBC believes that political risk, such as the recent plunge in pharma stocks following Hilary Clinton’s proposed cap on patient drug costs, could further weigh on the health care sector ahead of the U.S. presidential election.

The slew of mergers and acquisitions that helped support gains in the health care space may also wane this year. HSBC said that pharmaceutical M&A activity may be past its peak after leading global sectors over the past five year.

On the other hand, defensive consumer staples may be a better bet for 2016 as the sector includes companies that make and sell basic household goods that everyone needs, regardless of economic conditions.