Defensive Equity ETFs For Earnings Season
Corporate earnings season is upon us once again and many investors are likely looking for ways to favorably position themselves in anticipation of volatility. With major equity indexes sitting on hefty gains since the October 4th, 2011 lows, some are getting worried that any disappointment arising from corporate performance results could make way for profit taking pressures on Wall Street [see also Time To Buy VIX ETNs?].
Thanks to the ongoing evolution of the ETF industry, investors have several compelling products available at their fingertips which could offer a creative, and potentially “safer” way to play corporate earnings season. Investors who wish to establish a long position in equities, but are wary of a potential spike in volatility throughout earnings season, may wish to take a closer look at defensive-style ETFs [see our Low Volatility ETFdb Portfolio].
The equity ETFs profiled below are unique because they allow for investors to access one-of-a-kind methodologies which could offer an attractive risk/return profile in the current environment:
PowerShares S&P 500 Low Volatility Portfolio (SPLV)
This ETF allows investors to gain exposure to the S&P 500 Index with a twist. SPLV employs a creative security selection process; the underlying portfolio consists of 100 stocks from the S&P 500 Index which have exhibited the lowest realized volatility over the trailing 12-month period. The low-volatility approach offered through SPLV has some predictable biases, including major allocations to the consumer defensive and utilities sector. This ETF could serve as a viable alternative to the more popular SPY for investors looking to establish relatively “safer” exposure to the domestic large cap equity market [see SPLV Fact Sheet].
Guggenheim Defensive Equity ETF (DEF)
DEF offers exposure to a unique investment strategy which could serve as a valuable tactical play for those looking to scale back beta and volatility in anticipation of equity market turbulence. As such, DEF’s underlying index seeks to identify stocks which have a history of performing well, relative to broad equity benchmarks, during periods of escalated uncertainty [see our Simple (But Effective) Safe Haven ETFdb Portfolio]. This ETF utilizes a variety of factors to determine allocations; such as, focusing on stocks with low relative valuations, conservative accounting, dividend payments, and a history of out-performance during bearish market periods.
QuantShares U.S. Market Neutral Anti-Beta Fund (BTAL)
This long-short ETF is best suited for those looking to make a “bearish” bet on equities without going all in so to speak. BTAL’s underlying index is equal weighted, dollar neutral, and sector neutral consisting of long positions in the lowest beta U.S. stocks coupled with short positions in the highest beta securities. As such, BTAL allows investors to profit when market volatility spikes as lower beta securities are likely to outperform “riskier” stocks. This approach may appeal to investors who anticipate an increase in volatility during earnings season, but wish to avoid taking an outright short position in the equity market [see also How To Play A Treasury Bubble With ETFs].
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Disclosure: No positions at time of writing.
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