Investors Shift to Boring ETFs (XLP, HDV, XLU, PG)
The broad U.S. market is hitting new all-time highs and the risk-on trade should be in full force. That is not exactly the case today, as investors appear to be moving their assets into sectors that are considered safe and boring.
Sectors such as the consumer staples, utilities, and high dividend payers are breaking out after lagging the market for a large portion of the summer. The move is interesting considering the tech stocks, often viewed as above-average risk, have reported strong earnings and are also breaking out. This is where a solid diversification among several sectors becomes critical for a portfolio.
SPDR Consumer Staples ETF (NYSE: XLP)
The ETF is composed of stocks that most consumers use on a daily basis and will be forced to buy regardless of the economic climate. The top sectors include food & staples retailing, household products, and food & beverage. The top holding, Proctor & Gamble (NYSE: PG), makes up 14 percent of the portfolio and has rallied 8 percent in the last three weeks to move within striking distance of a new all-time high.
Year-to-date the ETF is up 22 percent and it pays a dividend yield of 2.6 percent. The annual expense ratio is 0.18 percent.
iShares High Dividend Equity ETF (NYSE: HDV)
An ETF that is not as concentrated, but also has exposure to consumer goods and other risk-off sectors is HDV. By concentrating on high-quality U.S. companies that focus on high dividends the ETF invests mainly in consumer goods, healthcare, telecom, and utilities. PG is the fifth largest stock in the ETF and telecom company AT&T (NYSE: T) is the top holding.
The ETF is up 18.5 percent in 2013 and is currently on pace to finish the day at the best closing price since it began trading in 2011. The dividend yield is 3.3 percent and it charges and expense ratio of 0.40 percent.
SPDR Utilities ETF (NYSE: XLU)
The utility stocks have often been viewed as an option for conservative investors looking for safety and high dividends. In the last three weeks the ETF bounced off a double bottom pattern and has rallied 5.6 percent to a new multi-month high. The ETF remains off the 2013 high as well as the 2007 all-time high, but the action recently has created some buzz.
The ETF is lagging the market this year with a gain of 12 percent, but it does pay a sizable dividend of 3.8 percent. If interest rates begin to increase again it could hurt the utility sector, thus keeping some investors away from the ETF. If XLU can break above $39.75 it would signify a breakout and a buy signal for the ETF. Until that occurs it could be a little risky to enter into the utility stocks. The ETF charges a 0.18 percent expense ratio.
Two keys to successful long-term investing are diversification and timing. Adding safety ETFs to a portfolio will often soften the blow during market pullbacks, but if timed correctly they can be a boost to the bottom line.
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