Koesterich Highlights ETF "Semi-Safe" Havens (LQD, DVYE, IXP)
The number of investment options that bear the label "safe haven" is shrinking amid Europe's worsening sovereign debt crisis and other global macroeconomic headwinds. Even gold, historically one of the premier safe haven options, has been tightly correlated with the euro and has behaved like a risk asset for much of 2012.
With cash instruments and U.S. Treasuries producing little in the way of yield, investors would do well to consider investments that are not quite, but almost safe havens, iShares' Global Chief Investment Strategist Russ Koesterich said in a recent note.
"Membership in the club of AAA-rated countries is rapidly shrinking, and rising correlations mean that, at least in the short term, virtually all risky assets are moving together," Koesterich said. "While there are still a few places to hide, I believe the “safety” of the real safe-haven investments comes at a cost."
Koesterich's "semi-safe" haven group includes some predictable choices at the sector level, but these low-beta options have proven sturdier than their high-beta counterparts in recent weeks.
"As of Monday's close, the US market was down roughly 8% from its peak. In contrast, at the same time, healthcare and consumer staples were down roughly 4% and 2% respectively, while utilities and telecom were posting new highs for 2012," he said in the note.
Koesterich highlighted the iShares S&P Global Telecommunications Sector Index Fund (NYSE: IXP) as a low-beta sector fund for investors to consider. IXP devotes over 40% of its weight to just three stocks – AT&T (NYSE: T), Vodafone (Nasdaq: VOD) and Verizon (NYSE: VZ). Overall, the $457 million ETF is home to 39 stocks and has a trailing 12-month yield of 5.56%, nearly double the trailing 12-month yield on the more domestically-focused iShares Dow Jones U.S. Telecommunications Sector Index Fund (NYSE: IYZ).
Koesterich highlighted dividend ETFs with his choices being the iShares High Dividend Equity Fund (NYSE: HDV) and the iShares Emerging Markets Dividend Index Fund (NYSE: DVYE). HDV has only been trading for about 15 months, but has managed to accumulate almost $1.6 billion in assets in that time. With an expense ratio of 0.4%, HDV is home to 75 stocks. Top-10 holdings include AT&T, Pfizer (NYSE: PFE) and Procter & Gamble (NYSE: PG).
DVYE, which faces intense competition in the rapidly expanding world of emerging markets dividend ETFs charges 0.49% and has a 30-day SEC yield of 6.08%, according to iShares data.
Investors looking for semi-safe haven fixed income options should consider the iShares S&P National AMT-Free Municipal Bond Fund (NYSE: MUB) and the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: LQD), Koesterich said in the note. Both funds pay monthly dividends. LQD has a trailing 12-month yield north of 4% and MUB's is above 3%.
"With Europe a lingering concern and the US fiscal cliff unlikely to be resolved until after the election, I'm sympathetic with investors' desire for safety. However, as traditional safe-haven investments come with considerable costs, 'semi-safe havens' may be the new place to hide," Koesterich said.
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