In the latest equity market rebound, safer sector-specific ETFs stood out, reflecting a shift in attitude as investors look for more defensive plays in a time of lingering uncertainties.
For example, investors may be looking into sector-specific plays like the Utilities Select Sector SPDR (NYSEArca: XLU), Consumer Staples Select SPDR (NYSEArca: XLP) and Real Estate Select Sector SPDR Fund (NYSEArca: XLRE).
The utilities, consumer staples and real estate sectors of the S& 500 have been outperforming the broader market, with at least 69% of companies in each of those groups trading above their 50-day moving average, the Wall Street Journal reports.
The sudden outperformance of these segments shows a clear contrast to the previous risk-on nature that helped cyclical sectors linked to the health of the economy outperform.
Dragging on sentiment and fueling the recent shift to more defensive plays, the escalating trade tensions between the U.S. and China over May caused major benchmarks to post their worst May performance since 2010.
However, some of the fears have been suppressed by a renewed optimistic outlook as more bet that the Federal Reserve will embark on a round of interest rate cuts to bolster the U.S. economy in light of the negative effects of trade barriers. The recent weaker-than-expected employment report for May and muted inflationary pressures also added to the growing bets of a rate cut ahead.
The move into safer stocks “really demonstrates how risk-averse investors have become in recent months,” said Eric Marshall, portfolio manager at Hodges Capital Management, told the WSJ. “A lot of it has to do with what effect the tariffs may have on the economy and uncertainty over how the Fed will or will not respond to that.”
With bond yields now falling back down toward multi-year lows, safer stock picks that offer a steady dividend are also looking much more attractive as an alternative income play to conservative bond plays. Those types of defensive companies are also considered some of the most reliable and least volatile in the equity market.
For more information on the market sectors, visit our sector ETFs category.