In the capital markets, growth and momentum are yesterday’s news as investors are tilting their preferences to defense and low volatility. As such, exchange-traded funds (ETFs) that can fill these voids are best served piping hot to investors hungry for safe haven securities.
“With SPDR S&P 500 Index ETF (SPY 284 Overweight) down 4% month-to-date through May 13, investors are again reminded that equity investments do not go straight up,” wrote Todd Rosenbluth, Head of ETF & Mutual Fund Research at CFRA.
“Indeed, in the last six trading days, when the S&P 500 declined 4.5%, defensive sectors such as Utilities (+0.4%), Real Estate (-0.7%) and Consumer Staples (-1.2%) have performed the best. In contrast, cyclical sectors impacted by the trade escalations, such as Information Technology (-7.1%) and Industrials (-5.6%), were the biggest drag on the S&P 500,” Rosenbluth added.
Here are three defensive ETFs to consider:
- Invesco S&P 500 Low Volatility ETF (SPLV): SPLV seeks to invest at least 90% of its total assets in common stocks that comprise the Index. The Index is compiled, maintained and calculated by Standard and Poor’s and consists of the 100 stocks from the SP 500 Index with the lowest realized volatility over the past 12 months. Volatility is a statistical measurement of the magnitude of up and down asset price fluctuations over time. The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November.
- iShares Edge MSCI Minimum Volatility USA ETF (USMV): USMV seeks the investment results of the MSCI USA Minimum Volatility (USD) Index. The fund will invest at least 90% of its assets in the component securities of the index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index measures the performance of large and mid-capitalization equity securities listed on stock exchanges in the U.S. that, in the aggregate, have lower volatility relative to the broader U.S. equity market.
- SPDR S&P 500 ETF (NYSEArca: SPY): SPY seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.
Still Some Love for SPY
When the markets are fed heavy servings of volatility, it helps to get tactical when it comes to using exchange-traded funds (ETFs). For the self-styled ETF tactician, SPY certainly serves one of their favorite tools.
It’s a trend that manages to keep persisting, but why the continuous appetite for SPY? ETF mavens cite SPY’s over $265 billion in assets under management as one prime reason.