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Concerned About the Market? Try These Resilient ETFs

Eric Dutram

After an amazing 2013, markets are experiencing a bit of a hangover to start the New Year. Worries about the taper along with sluggish economic data—including weakness in both the manufacturing and jobs segments—has pushed stocks sharply lower. In fact, broad markets have fallen by about 5% on the year, erasing much of the strength that investors had seen to end 2013.

Yet while many segments have fallen with the broad markets, a few have shown impressive resiliency, and are actually still up on the year. These segments may thus prove to be solid picks for investors seeking a respite from the market’s current storm, and they could also be great choices for the rest of the year if more turbulence hits the market (see all the Top Ranked ETFs here).

Below, we highlight three such segments—and ETFs to track them—which have not only survived the current market slump, but have actually prospered as well. These funds might have flown under your radar until now, but with their solid performances in what has otherwise been a poor market environment, they could now deserve a place on your watchlist:


Despite the downturn, growing segments of the market are still very much in demand. And given some of the recent health care law changes, this is particularly true for the biotech space, as any new drugs look likely to see a huge market, while the potential for M&A activity remains extremely high.

There are a number of ways to play this trend, but the First Trust NYSE Arca Biotechnology Index Fund (FBT) is a great choice. This product receives a top Zacks ETF Rank #1 (Strong Buy), and even with Monday’s slump it is easily beating out the S&P 500 over the past month (also see Biotechnology ETF Investing 101).

This product may be a better choice for investors as it is a nice mix between market cap levels thanks to its equal weight method. This puts 50% into the large cap space, making the fund a higher risk choice, but also a biotech that has some stability attached to it, an interesting combination in today’s market environment.

Mortgage REITs

Concerns over soaring rates really hit the real estate market hard last year, and especially so in the mortgage REIT space. This segment is usually highly leveraged and increases in rates can have a devastating impact, which is why the recent move lower in benchmark rates benefited this space so much.
One way to play this trend is with the Market Vectors Mortgage REIT Income ETF (MORT) which is up almost 4.3% in the past month. The fund, which follows the Market Vectors Global Mortgage REIT Index, also pays out a 30-Day SEC yield approaching 9.8%, so it is a great income destination as well (see all the Real Estate ETFs here).

The product is a bit concentrated in its top names, and it was really hit hard in 2013, losing more than 15% on the year. Still, if rates stabilize near historic-lows this could be an interesting play, especially given the near double-digit yield.

Preferred Stock

Preferred stock are known for their stability as they have both debt and equity characteristics. They also pay out relatively high yields, so when yields are slumping and risks are piling on, they can attract a great deal of investors.

This has certainly been the case as of late, and it is why investors might ‘prefer’ a fund like the PowerShares Preferred Portfolio (PGX) in their portfolios. This fund tracks a benchmark of just under 200 preferred stocks, focusing on financials for exposure (see Time for Preferred Stock ETFs?).

The fund does a decent job of spreading out assets, as no single security makes up more than 4.2% of the total assets. The yield is also pretty impressive as the 30-Day SEC payout comes in at nearly 6.5%.  

Bottom Line

Memories of 2013’s market surge are largely disappearing into investors’ rearview mirrors, as worries over the taper and poor jobs and manufacturing data dominate the landscape. A solid earnings season hasn’t been able to stop the slide either, and many segments are well into the red to start 2014 (see Best ETF Strategies for 2014).

However, despite the broad gloom, there are a few market segments that have been able to post decent returns to start the year. These have proven to be quite resilient, and thus for investors seeking safety, they might be solid picks to wait out more choppiness in the broad markets, especially if February follows January lower.

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Author is long MORT

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