Here's My ETF Strategy to Minimize Market Turmoil
NEW YORK (TheStreet) -- The last few trading weeks have surprisingly choppy, with the market unable to make up its mind on a convincing direction.
The mornings are typically filled with bullish opens that fade in the middle of the day as momentum wanes. The key push for the bulls is to regain the prior highs and extend this most recent rally. The bears, on the other hand, are gunning to push the major indices below their short-term trend lines to re-establish dominance.
Right now I gauge either scenario as being likely, with the bears perhaps having a slight edge given the propensity for greater volatility this year.
The biggest concern that we are seeing is fewer buyers in high-growth sectors such as biotech, solar and small-cap stocks, which have faded significantly from their highs. Both the iShares Nasdaq Biotechnology ETF (IBB) and Guggenheim Solar ETF (TAN) have now given back more than 13% on a closing basis from their high-water marks. Granted, these sectors have both seen triple-digit gains over the last 52 weeks, so it only makes sense they would be more susceptible to a pullback.
The recipients of these asset flows have been in safer areas of the market such as the long-duration Treasuries and large-cap stocks. The iShares 20+ Treasury Bond ETF (TLT) has been acting as a shelter from the storm during pressured selling days and the SPDR Dow Jones Industrial Average ETF (DIA) has also been outperforming other indices on a relative basis of late. This is being labeled as a warning sign by many professional investors because a rotation from small caps to large companies may be seen as a precursor to a bigger market pullback.
One area in particular that has been holding up well lately is larger dividend-paying technology companies. The First Trust Nasdaq Technology Dividend ETF
(TDIV) is a core holding for my clients and is chock-full of technology and telecommunication stocks with large cash positions, mature business models and established dividend histories.
The top three holdings include International Business Machines (IBM), Microsoft (MSFT) and Apple (AAPL). The current yield on this exchange-traded fund is 2.8% and dividends are paid quarterly to shareholders.
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