ETF Expert

Barclays bank reported mortgage-backed security losses. General Electric Asset Management revealed that a large bond fund had also suffered losses in mortgage-backed securities. And less I forget, the CEO of Wells Fargo described the housing slump as the "worst since the Great Depression."

Now how can stocks do well with headlines like that?

Ironically, stocks held up well for most of the morning and afternoon. It was that dreadful last hour of trading that witnessed yet another merciless pounding.

Still, it is my experience that stock assets do not trade on "headlines" for very long. At some point, stock assets begin to look attractive relative to alternatives. Or… fear of the future creates the loathsome bear.

Investors have been moving into classic defensive positions. The best performers on a relative basis were utilities, consumer staples, healthcare and telecom.

I would encourage a level of traditional defense via the Global Consumer Staples Fund (KXI). The risk-reward relationship is better than that of its America-only brother, Consumer Staples Select Sector(XLP).

Moreover, I am not a fan of domestic telecom right now. The iShares Dow Jones Telecom Fund (IYZ) has woefully underperformed the Global Telecom Fund (IXP). The picture below tells the story.

Similarly, I have concerns with rushing into the Utilities Select Sector SPDR (XLU). The knee-jerk reaction fails to recognize that the yield on Utilities Select (XLU) isn’t all that attractive at 2.6%. Instead, you can get classic bear market protection and a 5% yield from a consistent income-producer in the utility space through Con Edison (ED).

Not to be outdone, broad-based healthcare in the Healthcare Select Sector SPDR (XLV) may suit your downside fears. However, it may also fall short of your upside aspirations. An exchange-traded fund that has upside potential with relatively low drawdown on the downside is iShares Dow Jones US Medical Devices (IHI).

Naturally, one’s ultimate protection is the perceived safety of government bonds. But if the yields on American bonds fail to thrill, don’t forget about international sovereign (country) debt. There’s the developed country fund a la the SPDR Lehman Intl Treasury Bond ETF (BWX) and the emerging market option via the PowerShares Emerging Mkts Sovereign Debt (PCY).

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.