In this article, I will be creating a defensive portfolio by looking at how different asset classes have performed during corrections during the last 5 years. I recently read an article on ETFdb.com about how some defensive ETFs have performed during market corrections. The author focused on comparing four ETFs to the S&P 500 (NYSPY), and they are listed in the table below. While I believe this is a good starting list, I wanted to see a more complete picture with many more asset classes represented.
Consumer Staples Select Sector SPDR ETF
Utilities Select Sector SPDR ETF
PowerShares DB USD Bull ETF
SPDR Gold Trust ETF
For my search for defensive ETFs, I used the Fidelity ETF Screener to find ETFs I could use to construct a defensive portfolio. After entering the screener criteria below, I found that 82 ETFs were remaining, and out of those,
Investors that are concerned about the recent volatility in the stock market may want to consider looking at conservative equity strategies to protect their assets. There are a number of ETFs that have proven to be dual-purpose vehicles for steady capital appreciation and income despite the turmoil in high beta sectors.
Rather than completely pulling back your portfolio exposure to fixed-income or cash, you can reposition your equity sleeve to more defensive areas that still offer compelling growth opportunities.
One under the radar exchange-traded fund that has had a very strong start to the year is the Guggenheim Defensive Equity ETF (NYSEARCA:DEF). This ETF is made up of 100 global stocks that constitute the Sabrient Defensive Equity Index, which provides exposure to market sectors that have historically performed well in down markets.
So far this year, DEF has gained 6.32% and recently hit a new all-time high this week. It's
Earnings are one of the most important evaluation tools investors can use in assessing a company's health and future potential for share price appreciation.
Knowing that, it is no wonder history is littered with examples of companies using aggressive if not dubious accounting tools to beat Wall Street estimates and gain investor favor. For better or worse, history has a tendency to repeat itself in financial markets, meaning an emphasis on earnings quality is important to investors' returns. That is the concept behind the Forensic Accounting ETF (NYSEARCA:FLAG).
FLAG tracks the Del Vecchio Earnings Quality Index, which assigns 500 large-cap stocks a grade of A through F based on Del Vecchio's "earnings quality" methodology. The index looks for aggressive revenue recognition, inventory issues, reserve concerns, large changes in operation expenses, large changes in operation income and tax issues. The index would then exclude F ranked stocks, instead of shorting