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Get Rewarded For Playing Defense With This ETF

November 26, 2019 8:42 am
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Get Rewarded For Playing Defense With This ETF

Investors have been rewarded for playing defense this year as some of the largest low volatility exchange traded funds aren't trailing the S&P 500 by much while doing their jobs of being less turbulent than broader benchmarks.

Some other defensive strategies are performing well, too. That includes the Invesco Defensive Equity ETF (NYSE:DEF). The $269.5 million DEF is higher by 25.4% year to date, outperforming the major low volatility ETFs while also being less volatile than the S&P 500.

DEF, which turns 13 years old next week, holds 100 stocks on an almost equal-weight basis and tracks the Invesco Defensive Equity Index.

Why It's Important

DEF's underlying index “uses a rules-based approach to select companies that potentially have superior risk-return profiles during periods of stock market weakness while still offering the potential for gains during periods of market strength,” according to Invesco.

Although DEF is positioned as a defensive ETF, it's overly conservative at the sector level. For example, the consumer staples, real estate and utilities sectors combine for just over 20% of DEF's weight. Alone, utilities represent over 20% of the Invesco S&P 500 Low Volatility ETF (NYSE:SPLV).

DEF allocates nearly a third of its weight to the financial services and technology sectors, both cyclical groups, and over 28% of the fund's weight is devoted to stocks with the growth designation compared to just over 21% with the value classification.

What's Next

Assuming current performance trends hold, 2019 will mark the third time in the past four years that DEF has outperformed the two largest low volatility ETFs. The fund hit an all-time on Monday.

The fund is slightly pricier than the S&P 500 in terms of valuation, but with a return on equity of almost 32%, DEF is worth the cost of admission.

Investors have added nearly $48 million to DEF this year.

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