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3 ETFs That Can Hold Up Under Pressure

12 March 2013 at 4:28 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

With S&P 500 stocks approaching all-time highs daily, it may be more instructive to look at potential hedges and “diversifiers.” Here are 3 ETFs that are less likely to receive accolades when investors are smitten with Google (GOOG) and Gilead (GILD).

1. iShares Silver Trust (SLV). Over the last year, SLV has served as a fine diversification vehicle due to its low correlation (0.38) with the S&P 500 SPDR Trust (SPY). And over the last 6 months, SLV has been an admirable hedge against a stock market decline (-0.50).

Yet there’s one statistical relationship that may make silver a solid longer-term investment… its 10-year .92 correlation with the national debt. In other words, as long as the national debt increases, so should the price of silver.

Many people believe that the U.S. will never be able to pay down the national debt… that we can only push back the day reckoning. They argue that electronic money printing and/or quantitative easing merely allows the U.S. government to borrow inexpensively until a¬†catastrophic event (e.g., war, hyperinflation, European-style debt crisis, civil unrest, crash, default, etc.) restructures the entire economy.

It’s hard to argue that our national debt will go down over the next 10 years. It follows that — end of days or no end of days — correlation data demonstrate silver’s precious nature in a rising debt environment. Equally compelling, SLV has remarkable support at a price point of $25.

SLV

2. iShares Global Consumer Staples (KXI). One of the issues that face the “reluctant bull” is the reality that the tried-and-true U.S. consumer staples sector is hardly cheap. There may be safety and income for those who own Procter & Gamble, Pepsico and Colgate Palmolive via SPDR Select Consumer Staples (XLP), but unforeseen dollar weakness or a shift to foreign equities could cause underperformance.

One way to diversify some of that risk is to “go global.” Adding Nestle, Unilever and British American Tobacco to the mix involves hedging in non-dollars (roughly 50%) as well as benefiting from foreign mega-brands. Equally desirable, KXI’s worst drawdown over the 4 year bull market is approximately 15%… much less than the drawdown for a comparable benchmark like the iShares S&P 100 Global Index Fund (IOO).

KXI Versus IOO

3. Pimco 0-5 Year High Yield Corporate Bond (HYS). What if interest rates rise… won’t that hurt high-yield bonds? Perhaps, but it is more likely to hurt the longer-end of the curve. What if the stock market crashes… don’t high yield bonds tend to correlate more with stocks than bonds? Yes, but this shorter-term high yield vehicle has 336 securities with an effective maturity of 2.9 years; its 5% distribution yield and monthly income stream is plenty of reward for the possibility of a modest price pullback.

HYS 1 Year

You can listen to the ETF Expert Radio Show ‚ÄúLIVE‚ÄĚ, via podcast or on your iPod. You can follow me on Twitter¬†@ETFexpert.

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.

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2 Responses to “3 ETFs That Can Hold Up Under Pressure”

  1. Janet DiVona says:

    Why do you use HYS instead of HYG or JNK? HYS is new to me, and HYG has a dividend of 8.68. I have JAHYX Janus HY T, and BJBHX Artio Global High Income A.

    I didn’t know anything about stops when I bought Apple stock (AAPL), and 3D Systems (DDD). I’m 482.81 in the hole now in my personal account. My AAPL is down 21.16% and DDD is down 18.87%

    Can I set a stop after I buy a stock? If I have Fidelity do a trailing stop, and get stopped out, but want to again buy the same security again, will I get in trouble with the IRS for buying it too soon?

    Do you use stocks in your clients portfolios? I was surprised you recommended Nestle, Unilever, and British American Tobacco.

    I listened to Keith Degreen, Degreen Capital Manigement LLC, on KFYI 550 Radio each week for the last two years. His last program was Feb 24, 2013. He no longer will be on the radio. I thought you invested exactly like him. Now I’m not sure. Keith uses only two accounts (Wealth Preservation, and Growth). Based on a questionnaire, he puts each person into a portion of each account i.e. 60/50 etc. During any perceived volitility he goes to cash in the Growth portfolio portion only. He was in cash during the August/September 2011 downturn, I know that for sure.

    Do you set stops on SLV?

    I love the graphs you show, and haven’t heard of most of the ETFs you talk about.

    Thank you for any input you can provide.

    Janet DiVona
    jdivona@q.com

  2. Gary says:

    Janet,

    >>Why do you use HYS instead of HYG or JNK? HYS is new to me, and HYG

    I do not use one instead of the other, I use both. I believe investors need to be cautious with respect to longer-term high yield (HYG and JNK) and need to split with shot-term high yield (HYS SJNK).

    >>Can I set a stop after I buy a stock?

    Yes.

    >> If I have Fidelity do a trailing stop, and get stopped out, but want to again buy the same security again, will I get in trouble with the IRS for buying it too soon?

    No

    >>Do you use stocks in your clients portfolios?

    85% ETFs, 7.5% mutual funds, 7.5% individual stocks.

    >>I was surprised you recommended Nestle, Unilever, and British American Tobacco.

    I did not recommend these stocks… I recommended a global ETF that allocates to brand names… 50% American, 20% Australian, 30% Other Global.

    >>He no longer will be on the radio. I thought you invested exactly like him.

    I don’t invest exactly like anyone. I was on national talk radio from 1998-2005 and San Diego local 2006-2009. I still do a podcast.

    >>Do you set stops on SLV?

    I set stops on every investment.

    Best,

    Gary


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