Should You Follow Jim Cramer Into Regional Bank ETFs? | Main | Serious Questions About the “Great Rotation” Out Of Bond ETFs Into Stock ETFs

The Continuing Case For Defensive Equity ETFs

26 June 2013 at 2:29 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Has anyone given consideration to just how remarkably poor 1.8% GDP in the 1st quarter really is? In spite of unprecedented levels of monetary stimulus — emergency levels of quantitative easing that have been increased on a regular basis since 2009, rather than tapered — the U.S. economy continues to slow every year.

Not surprisingly, the bad news is benefiting market participants. After all, the Federal Reserve will not reduce its bond buying when the exceptionally modest economic growth is attributable to ultra-low rates alone. Cue a rate-sensitive asset buyback and celebrate the 10-year yield’s eventual reversion back to an intermediate-term 50-day trendline. (Take note of the fact that I am talking about 2%.)

TNX 50

From a technical perspective, it is intriguing to see the resilience of the S&P 500 SPDR Trust (SPY) at its 100-day moving average. The bounce suggests the potential for broader market stock ETFs to weather summertime squalls.

SPY

On the flip side, I am not seeing the benefit of over-weighting “strong economy” sector ETFs (e.g., technology, energy, materials, etc.). For example, iShares DJ Technology (IYW), SPDR Select Energy (XLE), SPDR Select Basic Materials (XLB), as well as SPDR Homebuilders (XHB) are all below respective 100-day moving averages. In contrast, more defensive equities in SPDR Select Healthcare (XLV), SPDR Select Consumer Staples (XLP), Market Vectors Retail (RTH) as well as the utility-like pipeline partnerships via UBS E-TRACS Alerian MLP (MLPI) are all above their respective 100-day trendlines.

MLPI 100

I believe investors have to a careful here. “Window dressers” often buy stocks at the close of quarters to appear to clients as though they have been holding the right positions all along. In other words, stock volatility will not subside due to a single GDP report.

You might consider dollar cost averaging into the defensive equity ETFs that I listed above. However, with the markets likely to punish scores of corporations in the upcoming earnings season, patience may be virtuous.

On the income side of the ledger, ETF enthusiasts would be wise to recognize funds that ultimately mature like individual bonds. For instance, Guggenheim’s BulletShares series offers a reasonably safe way to access short-term high yield; Guggenheim BulletShares High Yield 2016 (BSJG) as well as Guggeheim BulletShares High Yield 2017 (BSJH) may be situated in the sweet spot of the 0-5 year horizon. Municipal bond investors can look at similar maturities with iShares 2015 AMT-Free Muni (MUAD) and iShares 2016 AMT-Free Muni (MUAE).

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFExpert .

Disclosure Statement: ETF Expert is a web log (”blog”) 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.”

Share this post:
  • Print this article!
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Mixx
  • Google
  • E-mail this story to a friend!
  • Live
  • MySpace
  • TwitThis
  • Yahoo! Buzz

Tags | , , , , ,


Receive ETF Expert Daily By Email

Leave a Reply

Free Sign-Up                     ETF Expert RSS Feed  Follow EtfExpert on Twitter

Receive ETF Expert Daily By Email
Get The Weekly ETF Expert Newsletter

Archives