As U.S. markets continue to wobble, investors who want to stay in the game can look to defensive sector-related ETFs for a more steady approach.
“If the sell-off continues and it deepens, it’s going to provide tremendous opportunities as the market settles down,” Quincy Krosby, Chief Market Strategist at Prudential Financial, told CNBC.
“If you have to go into the market now, we suggest you go into the defensive names,” Krosby added, highlighting health care, consumer staples and utilities stocks.
Goldman Sachs also mirrors protective stance, advising investors to buy defensive sectors and stocks to ride out a tough year where fears of a recession increase, according to its latest official outlook report to clients. Goldman raised its utilities sector outlook to “overweight,” CNBC reports.
“For equity investors, risk is high and the margin of safety is low because stock valuations are elevated compared with history,” chief equity strategist David Kostin and team wrote in a note to clients. “We forecast the S&P 500 index will generate a modest single-digit absolute return in 2019. Perhaps more important, the prospective risk-adjusted return to equities will be less than one-half the long-term average and cash will represent a competitive asset class to stocks for the first time in many years.”
Consequently, if investors still want market exposure, they may look to defensive sector ETF plays. To gain broad utilities sector exposure, investors can look to the Utilities Select Sector SPDR (NYSEArca: XLU), Vanguard Utilities ETF (NYSEARCA: VPU), Fidelity MSCI Utilities Index ETF (NYSEARCA: FUTY), iShares U.S. Utilities ETF (NYSEArca: IDU) and Reaves Utilities ETF (NYSEArca: UTES).
Goldman argued that utilities have historically shown a “track record of notable outperformance during decelerating GDP growth environments and a low historical beta to S&P 500.”
American will still need healthcare services, regardless of how the economy is doing. Investors can also capitalize on this all-weather trait through healthcare-related ETFs, such as Health Care Select Sector SPDR ETF (NYSEArca: XLV), Vanguard Health Care ETF (NYSEArca: VHT) and iShares US Healthcare ETF (NYSEArca: IYH).
Additionally, consumers will still require the necessary daily goods, so investors can look to consumer staples ETFs like the Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP), Fidelity MSCI Consumer Staples ETF (NYSEArca: FSTA) and Vanguard Consumer Staples ETF (NYSEArca: VDC).
For more information on the market sectors, visit our sector ETFs category.