While volatility shook the markets, ETF investors may considered targeted sector plays that typically do well in times of heightened uncertainty.
The CBOE Volatility Index, or so-called VIX, a gauge of investor fear, has surged close to 50% in August, but based on previous spikes of uncertainty, this could mark a good buying opportunity, CNBC reports.
The VIX was hovering around 18.7 late Friday after almost hitting the 25 level earlier this month.
U.S. markets experienced extreme oscillations in August over rising trade war concerns between the U.S> and China, along with a more dismal global economic outlook due to the extended trade spate.
According to CNBC data, investors may do well with targeted ETF plays in the wake of the surge in volatility. Looking at the top ETF performers the week after the VIX rose above the 15 level 82 times in the past 10 years, utilities-related ETFs experienced the biggest returns.
If investors still want market exposure, they may look to defensive utilities sector ETF plays, such as 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).
Utilities are typically more stable stocks since demand for their services, notably electricity and gas, is steady from both consumers and businesses. Moreover, in a lower-for-longer yield environment, utilities come with more attractive above-average dividends.
The second-best performing ETF in a heightened VIX environment was iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR). ETF investors who are interested in the REITs space can also look to other sector-specific options, such as the Vanguard REIT ETF (NYSEArca: VNQ), Schwab US REIT ETF (NYSEArca: SCHH), and the Real Estate Select Sector SPDR Fund (NYSEArca: XLRE).
Real estate investors also enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.
For more information on the market sectors, visit our sector ETFs category.