Dividend ETFs, Defensive ETFs: 'Risk Sort of On' Trade Favors Moderation

by: Gary Gordon

As the mainstream media touted the Nasdaq’s best day in six months, its Powershares proxy (NASDAQ:QQQ) has remained range-bound for the past 10 weeks. Similarly, as CNBC guests heralded earnings successes from chip-giant Intel (NASDAQ:INTC) to industrial conglomerate United Technologies (NYSE:UTX), the S&P 500 SPDR Trust (NYSEARCA:SPY) had failed to appear on the new “52-Week High” list.

The fact that popular U.S. benchmark ETFs have yet to surpass their respective peaks suggests that the “risk on/risk off” concept may be too simplistic. Since the Middle East unrest in February, it has been a bit more like ... “risk is sort of on.”

I’ve touched on this phenomenon before. In an April 11 feature, “Surprisingly Healthy Returns For Health Care ETFs,” I documented the defensive sector’s significant outperformance over the broader U.S. market. In addition, SPDR Select Health Care (NYSEARCA:XLV) has regularly reached new 52-week highs.

Similarly, in a March 10 commentary, “Cyclical Sector ETFs Technically Worse Off Than Non-Sensitive Sectors,” I explained why investors might stick with toothpaste providers and electric utilities. The reason? Investors wouldn’t go “all in” on riskier assets without a sign that corporate earnings could withstand commodity price inflation.

Granted, 4/20 euphoria isn’t entirely without merit. Scores of corporations - IBM (NYSE:IBM), Intel, United Tech, Yahoo (NASDAQ:YHOO) - are managing the spike in commodity prices. These economic bellwethers may indeed be able to dismiss fallout from Japan’s earthquake, Northern Africa’s civil unrest and European sovereign debt issues.

With that said, investors shouldn’t be surprised that tech companies haven’t been hit as hard by higher raw material costs. We’re more likely to see that in consumer-related sectors. In addition, “big finance” hasn’t been able to break out of its funk. Worse still, the overall market won’t be able to breathe freely as long as energy prices remain a wild card.

So what’s a mutual fund manager, a financial adviser, an individual investor or an institutional investor supposed to do? Again, most have opted for “risk is sort of on” asset purchases.

Need proof? Get a gander at the ”New Highs List” for 4/20/11. It includes a wide range of Dividend ETFs and Non-Cyclical ETFs, while it excludes cyclicals like SPDR Select Technology (NYSEARCA:XLK), SPDR Select Industrials (NYSEARCA:XLI) and SPDR Select Materials (NYSEARCA:XLB).

Prominent U.S. ETFs Hitting New 52-Week Highs
3 Month % (Thru 4/20)
iShares Cohen Steers Realty Majors (NYSEARCA:ICF) 8.8%
Rydex Equal Weight Consumer Staples (NYSEARCA:RHS) 8.8%
Guggenheim S&P Global Dividend (NYSEARCA:LVL) 8.3%
Vanguard REIT (NYSEARCA:VNQ) 8.2%
Rydex S&P Equal Weight Health Care (NYSEARCA:RYH) 8.0%
Vanguard Health Care (NYSEARCA:VHT) 7.7%
PowerShares Food & Beverage (NYSEARCA:PBJ) 7.2%
First Trust Dividend Leaders (NYSEARCA:FDL) 7.1%
WisdomTree High Yield Dividend (NYSEARCA:DHS) 6.7%
SPDR Select Health Care (XLV) 6.5%
Vanguard High Yield Dividend (NYSEARCA:VYM) 6.2%
Vanguard Consumer Staples (NYSEARCA:VDC) 5.9%
S&P 500 Benchmark Still Below 52-Week High
SPDR S&P 500 Trust (SPY) 4.2%

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.