Playing Defense With ETFs
A Seeking Alpha Contribution
Summary
- Many defensive assets are highly correlated to the broader stock market, offering at best the possibility of smaller losses.
- The best defensive move is to increase cash.
- Leveraged and short ETFs are high risk if timing is even slightly off.
- ETFs such as UUP offer upside potential during corrections, but less downside risk than short or leveraged ETFs.
There’s isn’t a single definition of defensive stocks, but most investors agree that defensive stocks are those in non-cyclical industries such as consumer staples, healthcare and utilities. Defensive stocks also include those stocks with relatively high dividends, which makes them attractive to income-oriented investors who are likely to hold through a bear market. Defensive stocks are supposed to outperform during market corrections
Defensive stocks are predicted to perform better during the late stages of a bull market when investors rotate out of cyclical sectors and into non-cyclical sectors. The argument is that investors sell one sector with volatile earnings tied to the business cycle, such as energy, and buy another with more stable earnings, such as healthcare…. To continue reading, please Click Here.
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