Exchange-traded funds (ETFs) offer many benefits for investors. Funds that track a specific stock index or market sector give investors many diversification options. ETFs might also provide sustained, strong returns with low fees and affordable costs. Most ETFs also offer annual or quarterly dividends payments. If you aren't confident investing in individual stocks, ETFs can be the best way to have exposure to reputable and popular stocks as you balance the risk. With stock markets remaining variable and many assets such as cryptocurrencies being extremely volatile, you might consider using ETFs to protect your portfolio. Here are 10 defensive ETFs to protect your portfolio.
10. iShares Gold Trust (IAU)
Gold is yet to be replaced as investors' haven or reserve holding. With all the claims of cryptocurrencies replacing gold, the reality is that digital coins and tokens such as Ethereum and Bitcoin are still highly volatile. The gold remains steady as a rock and relatively low-cost at about 10 percent below the all-time high it reached in August 2020. iShares Gold Trust enables investors to track daily movements of the cost of gold bullion. As the price of gold fall and rises, so does the price of IAU ETF. Since being incepted in 2016, the iShares Gold Trust has produced an average 8.55% yearly return. It has an affordable cost per share of $35.78 and a relatively cheap administrative fee of 0.25%.
9. SPDR Retail ETF (XRT)
You can count on the retail sector of the economy to remain buoyant. So, why not consider investing some money in an ETF that tracks the retail industry? The SPDR Retail ETF covers a significant cross-section of the retail landscape in the U.S. Since 2006; the SPDR retail ETF has generated an average annual return of 13.09%. It charges a fee of 0.35%. Nevertheless, the ETF pays a yearly dividend yield of 0.67%.
8. iShares 1-3 Year Treasury Bond ETF (SHY)
If you want to be defensive, the rock-solid nature of U.S. government debt is a perfect investment. To decrease your risk more, short-term Treasury bonds that come due in a few years are one of the most secured debts. According to BlackRock, the iShares 1-3 Year Treasury Bond ETF is a $26 billion fund that invests in short-term Treasuries. It has an average maturity of 1.9 years across its holdings and an average maturity yield of 3.2%.
7. GraniteShares Gold Trust (BAR)
Beyond stocks, it's essential for investors searching for defensive ETFs to consider alternative low-risk assets, with gold being one of the most attractive alternatives to invest in. GraniteShares Gold Trust is a gold-backed fund tangled to physical gold instead of stocks that mine or process the metal. It's an established and liquid ETF with about $1 billion in total assets. The best thing about it is that it is one of the cheapest gold-related funds, with only 0.1749% in expenses. This is only $17.49 annually on each $10,000 you invest. This ETF provides a platform to hang tough for defensive investors given the potential instability in the stock market.
6. iShares MSCI USA Quality Factor ETF (QUAL)
iShares MSCI USA Quality Factor ETF is another incredible defensive ETF for investors searching for higher-quality stocks. It provides exposure to mid-cap and large U.S. stocks with a historical tendency and strong fundamentals to outperform their peers. It uses back-tested data to get insights on stocks with a track record of overcoming even the worst downturns and hence a perfect chance of hanging tough in the next crisis. Currently, QUAL holds about 130 different companies, with the top holdings being; soft drink king PepsiCo (PEP), Telecom giant Verizon (V.Z.), and fast-food icon McDonald's Corporation (MCD). All the stocks with solid fundamentals have a high return on equity, stable low financial leverage, and stable year-over-year earnings growth, which should ensure you remain in power in most markets.
5. Invesco S&P 500 High Div low volatility (SPHD)
What do you purchase if you like higher dividends as a way of investing in stocks with a proven track record and profits of delivering shareholder value, as well as lower-volatility stocks which alleviate potential declines? The Invesco S&P 500 High Div low volatility is one of the defensive ETFs that combine both ideas in a single holding. The portfolio only has 50 positions but offers a substantial dividend yield and the potential to overcome massive market declines via a low-vol approach. With $3.8 billion in assets under management and lower expenses of 0.30%, SPDH offers a dividend yield of 3.6%. So, if you are searching for a defensive fund that will provide consistent returns, his ETF is worth considering.
4. Vanguard 500 Index Fund ETF (VOO)
Among the ETFs that track stock market indexes, the S&P 500, which consists of the 500 biggest companies listed on the U.S. stock exchanges, offers the highest diversification. As an investor, you will get exposure to a broad range of companies in different economic sectors. Vanguard's 500 Index Fund is one of the best S&P 500 trackers with a 0.03% fee compared to an average of 0.83% on other ETFs. According to Scribd, VOO currently has total assets of $750 billion and has consistently delivered an average yearly return of 15.68% since 2010.
3. Vanguard FTSE Europe ETF (VGK)
One of the best ways of getting defensive is diversifying your portfolio by investing abroad, in this case, Europe. Financial Times Stock Exchange 100 and the FTSE 100 are some of the best stock markets to track in Europe. Vanguard FTSE Europe ETF (VGK) offers an excellent way of gaining exposure to blue-chip stocks trading in London and has names such as SAP, Nestle, HSBC Holdings, and more. Since 2005, this ETF has generated a 5.65% average annual return and 10.24% in the past five years. It also comes with a cheap fee of only 0.08% and pays 27 cents per share quarterly dividends.
2. Simplify Interest Rate Hedge (PFIX)
Simplify Interest Rate Hedge (PFIX) is among the best performing funds in the first half of 2022, with a remarkable return of over 50%. Such high returns are not easy to come along in any market environment. This defensive ETF invests in interest-rate options, and its performance is driven by a rising-rate market environment and tighter financial policy. This means that when the rates get high, so does PFIX. And with the U.S. Federal Reserve delivering the most significant rate hike and bench rates expected to hit 3.75 % by next year, these might only be the first stages of the hiking rates. The most considerable advantage of investing in PFIX is its ability to stay tough and offer decent returns even when the conventional stocks in your portfolio are not delivering as expected.
1. iShares Select Dividend ETF (DVY)
Many investors like dividend stocks as they provide an annual return based on the shareholders' regular distributions. According to iShares, the iShares Select Dividend ETF ($117.67) provides investors with a diverse portfolio of 100 stocks that generate better-than-average profits. The stock holdings must also have paid out the dividends for a minimum of the last five years, meaning you will get high payouts and holdings with a track record of paying their stockholders. Among the top holdings is oil refiner Valery energy, IBM, and MO, the tobacco giant, Marlboro parent Altria Group. The current DVY average annual yield is 3.4% which is significantly high. It has also remained intact amid the market downturn, declining by just 4%.
Written by Allen Lee
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