Fave Defensive ETFs From Fox's Eric Bolling
The year 2008, so far, has been anything but smooth sailing for investors. In this period of volatility, it might be nice to know what ETFs hold up well during crazy times.
How can one achieve some degree of stability without exiting the market completely and risking missing the boat to financial recovery? One way is to seek out stocks with defensive characteristics. To simplify the approach and optimize diversity, investors might want to turn to ETFs that also subscribe to this line of thinking.
For specific picks, we turned to Eric Bolling, a television personality and trader who has served as a strategic adviser and board member at Nymex Holdings (NMX).
Bolling named three ETFs he thinks would best serve investors who are looking to get defensive: iShares Dow Jones Select Dividend Index (DVY), PowerShares International Dividend Achievers (PID) and Consumer Staples Select Sector SPDR (XLP).
Why They Are Good Right NowA screen of the top-performing ETFs in recent weeks would yield a number of bear-market ETFs that are designed to give investors returns that correspond to the inverse of the performance of a certain index or sector. This category of ETFs can be risky and less than ideal for investors who are simply looking to get defensive. "I would advise to stay away from those," Bolling says. "They might be getting you shorter than you want." The two primary characteristics that Bolling seeks in selecting defensive ETFs are high dividend yields and holdings that are comprised of consumer staples. With just over 100 long positions, the iShares Dow Jones Select Dividend Index is dead on in the dividend yield category. It presently yields 3.7% and when compared to the S&P 500, it is most overweight in utilities and financials. Included in its top holdings are blue chips such as AT&T (T), Merck (MRK), FirstEnergy (FE), and JPMorgan Chase (JPM). The Select Dividend Index could also stand to benefit from future interest-rate cuts by the Federal Reserve, which many market watchers think will be coming in the next few months. Bolling likes this ETF partially for its liquidity. With an average daily volume of 1.2 million shares, DVY should allow investors to be able to trade in and out fairly easily. The PowerShares International Dividend Achievers ETF takes a similar approach to the Select Dividend Index, but with more international flavor. It's a mix of more than 50 foreign-based companies that pay healthy dividend yields and are primarily large-cap in nature. The ETF currently yields 2.4% and is heavily weighted toward financials with such holdings accounting for more than 40% of its portfolio. Among its top holdings are Nam Tai Electronics (NTE), Barclays (BCS), HSBC Holdings (HBC) and Bank of Montreal (BMO). With top holdings such as Altria (MO), Wal-Mart (WMT), Coca-Cola (KO) and PepsiCo (PEP), the Consumer Staples Select Sector SPDR is a mixture of blue chip, consumer goods stocks that are looking for a bounce from beaten up share prices as well as from new money from investors looking to lower the volatility of their portfolios. "If you were in this ETF for the past five years, you would be trailing the market," Bolling said. "But now I think you will see people begin to get smart and shift away from higher multiple, growth plays." Bolling also believes a number of these holdings are recession-resistant. "People are still going to smoke. They are still going to buy Pepsi and Coke," he said.
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