Non-cyclical stock sectors (e.g., consumer staples, health care, utilities, etc.) often do well when there are concerns about economic growth. Indeed, exchange-traded funds representing one or more components of the non-cyclical arena have been the key drivers in the broader U.S. market’s run toward all-time records.
Nevertheless, it is still a bit surprising that the potential for a banking collapse in Cyprus has had little to no effect on 3 ETF categories. In fact, over the last 5 trading days, scores of the funds in select groupings have actually gained ground.
1. Minimum Volatility ETFs. By definition, businesses that are less tethered to economic cycles are also less volatile. It follows that you’re going to see a whole lot of consumer defensive stocks, pharmaceuticals, utilities, traditional telecom and broader-based health care names in a Minimum Volatility ETF. That said, even if one expected to see “Domestic Low Vol” on the 3/22 52-Week High list, one might be shocked to see “All-World Low Vol” and “International Low Vol” as well.
|Low Volatility ETFs Dismiss Cyprus Concerns|
|5-Day %||3/22 52-Week High|
|iShares MSCI Min Volatility (USMV)||1.2%||Yes|
|iShares MSCI EAFE Min Volatility (EFAV)||1.1%||Yes|
|iShares MSCI All Country Min Volatility (ACWV)||0.9%||Yes|
|PowerShares S&P Low Volatility (SPLV)||0.4%||Yes|
2. Multi-Asset Income ETFs. The artificial manipulation of interest rates by central banks around the world forces no-risk savers to become modest-risk investors; the 1% return from a 1-year CD or the 2% from a 10-year Treasury simply doesn’t cut it… especially if one is drawing 4% annually from his/her account.
Enter a diversified arena of multi-asset income funds. Yield production between 3%-8% on a wide variety of holdings can mean as much as 5.5% in annualized income for shareholders. The potential for capital appreciation is also an attraction for a fund classification that has hit a fresh 52-week peak.
Of course, there’s also the possibility that a down year for a collection of risk assets — master limited partnerships, dividend stocks, real estate investment trusts, preferred shares — would entirely erode the income produced. Granted, some REITs and MLPs depend on economic growth more than others. Yet, safety and income at a reasonable price is still the major thrust for this category.
|Multi-Asset Income Is Catching A Wave|
|5 Day %||3/22 52-Week High|
|First Trust Multi-Asset Divers Income (MDIV)||0.4%||Yes|
|Guggenheim Multi-Asset Income (CVY)||0.1%||Yes|
|SPDR S&P 500 Trust (SPY)||-0.2%||No|
3. Global Non-Cyclical ETFs. It’s one thing to realize that a major reason for owning U.S. non-cyclical stocks is the undesirability of bond alternatives. It’s another thing to recognize that, in spite of well-publicized systemic threats in Europe, international consumer staples and international utilities and international health care are performing admirably.
The best way to tap the trend? Go global. Global ETFs tend to have 50% in U.S. equities and 50% in large-cap, foreign developed equities. Each has managed to close out the third week of March at a new 52-week pinnacle.
|Going Global Has Its Rewards|
|5 Day %||3/22 52-Week High|
|iShares S&P Global Utilities (JXI)||1.2%||Yes|
|iShares S&P Global Consumer Staples (KXI)||1.1%||Yes|
|iShares S&P Global Health Care (IXJ)||0.8%||Yes|
|iShares Global 100 (IOO)||-0.4%||No|
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Disclosure: 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.