ETF Update: Consumer Staples' Smaller Losses; New Actively Managed ETF, Industrial Blues; Options Traders Love ETFs

Consumer Staples Outperform But Are Still Down

Despite a recession, financial pros are touting the consumer staples portfolios and ETFs as good performers during the next few months.

This year so far, some of the better performers are those funds that zero in on toothpaste, food and paper towels. Some of these funds are down 20% instead of 30%-40% as the broader market is, says John Spence for The Wall Street Journal. The consumer staples is seen as a defensive play in a down market.

Consumer staples companies tend to have steadier revenue even when the economy pulls back. These stocks won’t soar in speculative bull markets, but they tend to weather bear markets in good shape.

Sector funds aren’t meant to be core portfolio holdings and investors go to them at the same time they flock to health care and dividend-focused ETFs. This time around, the consumer staples are offering up smaller losses then the rest of the market, although they are still in the negative. Some of these funds might be hit by a consumer pullback in food spending.

Consumer staples ETFs typically hold shares of well-established, profitable businesses that also pay respectable dividends. These companies have little debt and touch down upon many corners of the market.

• Consumer Staples Select Sector SPDR (XLP), down 13.4% year-to-date

• Vanguard Consumer Staples (VDC), down 15.1% year-to-date

New PowerShares Actively Managed ETF

PowerShares is growing its family of actively managed exchange traded funds this month. The newest addition to the family will focus on U.S. real estate and will trade on the NYSE Arca.

MarketWatch reports that the new ETF will list as the PowerShares Active US Real Estate Fund (PSR).

The ETF seeks to provide high total return by investing in publicly traded U.S. real estate companies selected using a proprietary stock selection model developed by Invesco Institutional (N.A.), Inc. The fund will invest mostly in real estate investment trusts (REITs).

The anticipated expense ratio is 0.80%.

Industrial ETFs Fall on Weak Manufacturing Numbers

Stocks and ETFs are back-and-forth following a weak manufacturing reading yesterday.

The Institute for Supply Management said that its index fell to 38.9, the lowest reading in 26 years, says Ellen Simon for the Associated Press.

Any reading below 50 signals a contraction, and it’s far below the expected reading of 41.5.

Construction spending has also fallen, but by a smaller than expected amount, reports Martin Crutsinger for the Associated Press. A rebound in nonresidential activity helped to offset weakness in the sector. Many economists expected a 0.8% drop in spending, but it only fell 0.3%.

• Industrial Select Sector SPDR (XLI), down 34.7% year-to-date

• iShares Dow Jones US Industrial (IYJ), down 36.% year-to-date

The start of a new month brings a lot of reflection about where we’ve been and where we’re going. The early days of November are no exception, especially since October was one of the worst months in history. A Barron’s poll has the Dow Jones Industrial Average ending 14% higher than Friday’s close, says Aaron Task for the Tech Ticker.

The Washington editor noted that the kind of “naked panic” seen in September and October often precedes big turning points.

Will it be so? The next two months could be interesting to watch.

Options Market Turns to ETFs

The options market, where the sophisticated traders hedge their bets, is taking to ETFs rather than individual equities.

Higher market volatility has ended up in higher costs for traders, especially with specific stocks. David Gaffen for The Wall Street Journal reports that the wild rise in equities has actually driven more traders to do their business with ETFs.

The broad ETFs are getting the most attention and they are staying flexible and nimble for the traders, thanks to the diversification they offer.

While option trading in individual equities is still more popular than ETF options or options trading in an index, ETF volume has been increasing rapidly, up 159% from a year ago in September.

According to the Chicago Board Options Exchange [CBOE], index option trading volume increased 69% in the same time period.