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“Risk Off” Trade Reveals A Number Of Stock ETF Survivors

01 June 2011 at 4:26 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Many financial commentators believed that the stock market would continue¬†managing the realities of¬†record price depreciation in U.S. property, new lows in consumer confidence as well as¬†ongoing¬†debt uncertainty in Europe.¬†Who could¬†blame them for thinking that way? After all, didn’t the stock market surge 1% across-the-board on the last day of May?

It’s not that the market’s resilience hasn’t been impressive. I just¬†believed that¬†the cumulative nature of the economic woes would eventually take a toll.¬†And when the first day of June trading demonstrated just how dark “June gloom” could be, the previous¬†day’s “window dressing”¬†was placed into¬†its proper perspective.

Yet there are at least 3¬†tailwinds¬†to support risk assets over the next 7 months. First and foremost,¬†Bernanke’s Fed will use weak employment numbers to validate¬†ongoing easy monetary policy.¬†The chairman of the Federal Reserve simply isn’t worried about the U.S. dollar or commodity price inflation at the moment; rather, he believes easy¬†access to¬†money will eventually lead corporations to¬†greater levels of hiring.

Second, investors may not want to invest in banks, but banks are lending to one another. Some fret that the sovereign debt held by financial institutions around the world will cause yet another systemic collapse. However, the 3-month LIBOR rate has dropped from a 2010 peak of .055% down to 0.25% at present.

Third, it is nearly impossible to dismiss reasonable valuations of corporations. Consider the S&P 500 at 1315 in June 2011. The total earnings for these 500 companies today far surpasses what they were in October of 2007; that said, the heralded benchmark remains in the low 1300s, not the mid 1500s.

In spite of the June 1 carnage, I did screen for survivors. Specifically, I wanted to locate Stock ETFs that fell less than half that of the Vanguard Total U.S. Stock Market (VTI); the survivors also had to post gains over the prior month. (VTI had lost -3.2% month-over-month.)

Here’s what I discovered:

Stock ETF Survivors Over 1 Day and 1 Month    
        1 Day % Loss 1 Month % Gain
             
Global X Columbia (GXG)   0.1%   2.2%
PowerShares Dyn Pharmaceuticals (PJP) -0.9%   1.8%
SPDR Consumer Staples (XLP)   -1.0%   1.3%
SPDR Select Utilities (XLU)   -1.0%   1.1%
iShares Consumer Goods (IYK)   -1.0%   0.9%
iShares MSCI Switzerland (EWL)   -1.1%   0.7%
Vanguard Utilities (VPU)   -1.1%   0.6%
SPDR Pharmaceuticals (XPH)   -1.1%   0.6%
Telecom HOLDRs (TTH)   -1.0%   0.2%
             
Vanguard Total Market (VTI)   -2.3%   -3.2%

 

With the exception of bargain-hunting in a single-country emerging market, investors are still benefiting from the conservative shift to economically cyclical sectors to non-cyclical sectors¬†(e.g., staples, telecom, utilities, pharma, etc.).¬†Predictions that people were gearing up to jump back into energy, materials, tech and consumer discretionary appear to have been erroneous. Either that… or they were just “early.”

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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