Best defensive ETFs for plunging markets
- By Georgina Tzanetos,
- Bankrate.com
- – 05/13/2022
Concerns for the global economy and investors coming to terms with the Federal Reserve’s tightening of monetary policy have roiled financial markets in recent weeks. The S&P 500 (
Markets have been rattled by ongoing concerns surrounding the Russia-Ukraine conflict and the largest Fed interest rate hike since 2000. Moreover, inflation is currently around 40-year highs. The combination of geopolitical conflict, rising interest rates and unrelenting price pressures have provided the perfect storm for tumultuous trading.
If you haven’t done so already, it’s probably a good time to make sure your investments are well-positioned to defend your portfolio against prolonged periods of market volatility.
One way is to consider some of these low-expense ETFs that are invested in areas that tend to do well when markets turn bearish. Below are some top defensive funds to take a look at. (Data is as of May 11, 2022.)
iShares Edge MSCI Min Vol USA ETF
This popular fund (
The fund mimics the MSCI USA Minimum Volatility Index, whose goal is to create the least-volatile basket of stocks from large- and mid-cap stocks. According to Morningstar, the fund has experienced 25 percent less volatility than its parent index since its inception in 2011.
5-year returns (annualized): 10 percent
Dividend yield: 1.39 percent
Expense ratio: 0.15 percent
Fidelity MSCI Utilities ETF
Sectors like utilities and water tend to hold strong during times of market downturn, as their demand is a part of everyday life, regardless of market movements. Utility stocks are generally considered to be a good defensive move against bear markets/ market downturns.
Two of the fund’s (
5-year returns (annualized): 9.88 percent
Dividend yield: 2.73 percent
Expense ratio: 0.08 percent
Invesco S&P 500 High Div Low Vol ETF
With one of the highest yields on this list, the Invesco high dividend/low volatility ETF (
All three sectors are well-poised for dividend growth, even during a market downturn. Utilities are a constant need regardless of market conditions, as is healthcare, and consumer defensive stocks that produce everyday mainstays like personal goods and foods all position a portfolio well in the event of market volatility. Some of its largest portfolio holdings include Kinder Morgan (
5-year returns (annualized): 7.53 percent
Dividend yield: 3.38 percent
Expense ratio: 0.3 percent
Vanguard Consumer Staples ETF
Similar to the Fidelity MSCI Utilities ETF, this Vanguard fund (
The fund’s three largest holdings are in Procter & Gamble (
5-year returns (annualized): 9.27 percent
Dividend yield: 2.03 percent
Expense ratio: 0.1 percent
Utilities Select Sector SPDR ETF
Another fund focused on utilities, this ETF (
5-year returns (annualized): 10.26 percent
Dividend yield: 2.82 percent
Expense ratio: 0.1 percent
iShares 1-3 Year Treasury Bond ETF
This bond fund (
The short maturities decrease the risk of runaway interest rates clamping down on the fund’s price. The fund is designed to hedge market downturns and could have a place in a diversified portfolio positioned for volatility.
5-year returns (annualized): 0.86 percent
Dividend yield: 0.25 percent
Expense ratio: 0.15 percent
Bottom line
There are a variety of investments that savvy investors can still tap into during market downturns. The end-all answer does not have to be simply to sell during difficult times. Rather, you can turn to low-expense ETFs positioned in defensive stocks and consumer goods whose services are essential to everyday life. These ETFs can position an investor well in the face of several simultaneous stressors on the global economy.
More adventurous investors can also choose to invest in these sectors on their own, through individual stocks. It’s important to reassess your portfolio ahead of anticipated volatility, and consider incorporating some defensive investments as needed.