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Put Up or Shut Up: How 3 ‘Low-Risk’ ETFs Held Up

A breakdown of XLU, IYH and IXP's performance since early spring


The financial press has an abundance of advice but a bit of a shortage when it comes to follow-up. Few writers bother to review how those “three hot stock picks” they recommended actually performed in practice.

Frankly, they should. When you make a good call, you deserve credit. But you “own” the bad calls, too. People invest their hard-earned money after reading what you had to say. You owe it to them to go back and check your work.

Today, I’m going to revisit an article I wrote in late March: “Three Low-Risk ETFs to Ride Out a Volatile Spring.”

At the time of the original article, the Arab Spring was in its infancy, the Japanese Fukushima plant threatened the world the with the worst nuclear disaster since Chernobyl, and the sovereign debt crisis had just caused the sitting Portuguese government to fall. The markets long ago lost interest in the Arab political revolution and the Japanese nuclear disaster, but the euro zone crisis actually has deepened. That “volatile spring” ending up bleeding over into a volatile summer — and a volatile early fall as well. And if we don’t get a resolution of the ongoing Greek crisis soon, we can look forward to a volatile winter.

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Since the original article went to press, the S&P 500 is down 14% (see black line in chart). Let’s see how my recommendations did.

Utilities Select Sector SPDR (NYSE:XLU): Of the three ETFs recommended, XLU is the clear winner. At time of writing, it shows a price return of more than 4%, which does not include the 68 cents per share in dividends. The dividends add an additional 2.2% for a total return of more than 6%. Not a bad return, all things considered. On a total return basis, it’s about 20% better than the S&P 500. But perhaps what is most impressive is that even during the pits of the August selloff, investors who bought in March would have been down less than 4%. Again, not bad. During the course of the fourth quarter, readers might want to take profits in the utilities sector and reallocate their funds to more growth-oriented sectors.

iShares Dow Jones US Healthcare (NYSE:IYH): My rationale for recommending Big Pharma was pretty straightforward. The stocks in the sector already had been punished by fears of patent expirations, and I believed the selling to be overdone. Furthermore, health care is a defensive industry. Even if it’s not “recession-proof,” it’s certainly recession-resistant. IYH sold off far more aggressively than XLU, but it still managed to hold up fairly well. At time of writing, IYH is down 6% from my recommended price versus a 14% loss on the S&P 500. This does not include the nearly 1% that the ETF has paid in dividends during the period. Overall, I can’t complain about IYH’s performance. To survive the bloodbath of the past six months with only minimal losses is an accomplishment. I continue to see a lot of value in Big Pharma, and I recommend that readers hold on to their shares of IYH.

iShares S&P Global Telecommunications (NYSE:IXP): This recommendation has been a bit of a disappointment to me. Yes, it performed better than the S&P 500. But its price still is down 10%. After the $1.73 per share in dividends, the loss is closer to 7%. That’s not bad, but given the cheap valuations in the sector, the steady dividend payout and the defensive nature of the business, I would have expected better.

Of the three ETFs, IXP would be my favorite at the moment. The companies that comprise the fund’s holdings are in the unique position of being “defensive” in the developed markets of the United States and Europe, and “growth investments” with respect to their prospects in emerging markets. During the past year, I’ve highlighted the Spanish telecom giant Telefónica (NYSE:TEF) for its exposure to the fast-growing markets of Latin America, which make up 40% of company revenues. Telefónica is a major holding of IXP, and there are plenty more just like it.

I would like to reiterate my buy recommendation of IXP. Whether the volatility finally is over or not, I consider the telecom sector to be the best value for your dollar today.

Article printed from InvestorPlace Media,

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