Five ETFs for Times of Turmoil

By Michael Johnston of ETF Database

NEW YORK (TheStreet) -- Still scarred by memories of the not-so-distant recession, many investors have been spooked by recent volatility in equity markets, wondering whether they should bail on the market before another double dip.

But even fresher are the memories of the bull market of 2009, especially for those who regretfully watched from the sidelines as equity markets soared.

The psychological battle between fear of loss and anxiety over the potential regret of missing out on another rally plays out differently for different investors. Some will run for the exits, while others decide to stay the course. Many more land somewhere in the middle, looking for a way to reduce downside risk while maintaining significant exposure to another uptick in asset prices.

Below, we take a look at five defensive equity ETFs that have historically delivered strong relative performances during times of economic turmoil.

For investors looking for a middle ground, these funds may be an efficient way to reduce volatility while maintaining significant upside exposure as well (for more actionable ETF ideas, sign up for our free ETF newsletter):

Claymore/Sabrient Defensive Equity Index ETF (DEF)

As its name suggests, this ETF invests primarily in "defensive" stocks that tend to perform relatively well during economic downturns.

The index underlying this fund is designed to actively represent a group of securities that reflect occurrences such as low relative valuations, conservative accounting, dividend payments and a history of outperformance during bearish market periods. Not surprisingly, DEF has its largest weightings in the utilities and consumer staples sectors.

Utilities Select Sector SPDR ETF (XLU)

Utilities have historically been one of the least volatile sectors of the U.S. economy, as evidenced by this ETF's beta relative to the S&P 500 of just 0.60. Most utilities companies provide essential services, meaning that revenue is relatively inelastic and profitability varies little between bull and bear markets. Major holdings in XLU include electric utilities, independent power producers, energy traders and gas utilities.