Highly Defensive ETFI: Lower Volatility, Higher Returns

The accompanying table (click to enlarge) includes an updated version of the ETFI Highly Defensive PerformIdex of 40 companies based in the U.S., Canada, and Europe with market caps over $10B, which are the leaders by market cap in their defensive industry groups. The updates include removing retail exposure at CVS Caremark (CVS) and Tesco (TSCDY.PK) in favor of keeping Wal-Mart (WMT) as the major beneficiary of a trade-down effect and mass merchant discounter, which integrates groceries, pharmacy, everyday clothing, consumer electronics, auto services, and household products in its stores at low prices.

Also removed from the index were Google (GOOG) and Disney (DIS), which face exposure to lower ad spending and lower theme park traffic, respectively, during the economic downturn. Comcast (CMCSA) remains as the sole at-home entertainment play as a cable TV and broadband internet access provider.

(A) Mass Merchant Discount Retailer (1)

(B) Consumer Staples (14) – Non-Food/Beverage (2), Processed & Packaged Foods (4), Tobacco (2), Alcoholic Beverages (2), Non-Alcoholic Beverages (2), Diversified Products (2)

(C) Telecom Services (4)

(D) Cable Television & Internet Access Providers (1)

(E) Utilities (3)

(F) Fast Food Restaurants (1)

(G) Commodities (2): Gold Mining (1) + Agri-Biotech (Seeds & Fertilizers) (1)

(H) Healthcare (13) – Top Seven Companies by Market Cap (7), Biotech (3) Medical Devices & Supplies (2), Generic Drugs (1)

(I) Aerospace (Non-Commercial) & Defense (1)

To replace the companies removed, Groupe Danone (GDNNY.PK) was added to the consumer staples category while healthcare was expanded to 13 companies by adding Celgene (CELG) as a high-growth, defensive cancer biotech and Abbott Labs (ABT) + GlaxoSmithKline (GSK) as diversified healthcare companies. Also, Verizon (VZ) was added to the telecom services category, which includes four companies with dividend yields of at least 5.5% each.

Over the past year, the index has outpaced its benchmark ETFs on a total return basis with a loss of 10.9%, including Consumer Staples (XLP) (-11.3%), Healthcare (XLV) (-23.6%), Utilities (XLU) (-27.1%), Dow Jones Global Titans (DGT) (-36%), and iShares Dow Jones Select Dividend (DVY) (-28.4%). Also, the equally-weighted index has a below-market volatility beta value of 0.57, PEG ratio of 1.50, dividend yield of 3.3%, and average market cap of about $73B.

Comments

[Urbane Gori...:]

How about a leadin explaining who or what ETFI is.... I Googled it and came up with what appears to be a site for aid to foreign countries... That seems to be unrelated to SeekingAlpha.. Thx jegan

2008 Nov 10 04:05 PM

[Sailorman:]

Excellent question? This article is meaningless as is the next article on healthcare etfs

2008 Nov 11 07:47 AM

[MiddleOfRoader:]

Impressive that 8 of the 40 have a positive 52 week return. However, 5 of the 8 are in healthcare, and I am reluctant to commit to that area until we see details of what Congress has in mind for this area.

2008 Nov 15 12:35 AM