Defensive Strategies in Today's Market Includes Stable Growth

A lot of talk in the capital markets is the exodus of growth strategies and the comeback of value, but Goldman Sachs is still touting growth, but with a unique twist–growth via equities that have the propensity for stable earnings.

According to a CNBC report, J.P. Morgan “added a new basket of “stable growers” to its portfolios created exclusively for its clients, and it’s beating the market with a 27% return year to date versus the S&P 500′s 16%. The 50 stocks in the basket have the lowest volatility of quarterly earnings growth over the past decade.”

Within the last two years, the stable growers portfolio has been yielding 22% versus 16% for the S&P 500 and 1% for growth stocks. Furthermore, the portfolio is built to withstand any market movements stemming from news like the U.S.-China trade wars for example.

As the investors’ wall of worry gets bigger, stable growth cuts out the market noise and refocuses on the fundamentals via earnings.

“Stable growth stocks fare best in environments of slowing economic growth and rising uncertainty,” said Ben Snider, an equity strategist at the bank. “The sharp outperformance of stocks with stable earnings growth has widened their valuations relative to volatile growth stocks to the largest premium on record.”

“We believe investors should generally bias their portfolios away from stocks with the most volatile growth,” Snider said. “Growth stability has had an impact on long-term stock performance.”

Safe haven investing has been the default play as market volatility descended upon the capital markets during the latter portion of the summer, but simply playing defense won’t cut it when it comes to gains. Investors need to not only play defense, but play defense strategically given the current market landscape.

Getting Back on Defense

As opposed to individual exchange-traded funds (ETFs), investors can also look to play defensive sectors over cyclical sectors via relative weight ETFs.

For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.

Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.

For more market trends, visit ETF Trends.