After a rocky week for U.S. stocks that saw the S&P 500 endure its worst one-day performance since 2011, hopes for cyclical rotation may have taken some damage. However, those hopes are not completely dashed because some sector ETFs that would be prime beneficiaries of a legitimate cyclical rotation have outperformed lower beta funds over the past month.
Defensive sectors such as consumer staples and, in particular, utilities have taken their lumps over the past few weeks with Utilities Select Sector SPDR (XLU) down 6.9% in the past month. The Technology Select Sector SPDR (XLK) has only been half as bad.
Over the same time, the Consumer Staples Select Sector SPDR (XLP) is off 4.6%, but the Financial Select Sector SPDR (XLF) looks good by comparison with a loss of less than 3%. [A Dividend ETF for the Cyclical Rotation]
“As more crowded trades, defensive sectors are potentially more sensitive to investor sentiment and could experience greater price volatility,” said iShares Global Chief Investment Strategist Russ Koesterich.
Investors looking to fill out the international portions of their portfolios while capturing some cyclical rotation exposure have options, including the following ETFs.