3 Safe ETFs for a Bear Market — ACWV, RYU, IXP

Advertisement

It’s a scary time in this bear market. The indices and individual stocks have been on a roller-coaster since the year began. Many blue-chip stocks were vastly overvalued and have been taken down by 10% or more. Earnings revisions are coming way down, and the games that companies play by juicing earnings through stock buybacks and expense cuts are coming home to roost.

3 Safe ETFs for A Bear Market -- ACWV, RYU, IXP

Source: istockphoto.com/joxxxxjo etf

It’s a bear market, for sure.

Hopefully, you have a broadly diversified long-term portfolio that contain some solid exchange-traded funds. However, you may have found that those “safe” ETFs contain many of those overpriced blue chips stocks.

Now you are looking at those ETFs with concern and wondering if there’s some way of selling out of them and redeploying your capital elsewhere during this bear market.

Rest assured, there are many ETFs, and they have a huge range of risk profiles. Here are three ETFs that I consider to be safer than so-called safe blue- chip ETFs.

ETFs for a Bear Market: iShares MSCI All Country World Minimum Volatility (ACWV)

ETFs for a Bear Market: iShares MSCI All Country World Minimum Volatility (ACWV)Expenses: 0.2%, or $20 per $10,000 invested

The very name of the iShares MSCI All Country World Minimum Volatility (ACWV) should give investors some comfort. This is one of those “smart-beta” ETFs that aims to use a particular strategy to achieve a certain goal.

Low-volatility ETFs like ACWV have a tendency to lag in bull markets, but we are not in a bull market. It is up 1.7% so far this year, and has a 2.3% yield. Its top ten holdings only account for 13% of the asset base, and include a number of U.S.-based companies that produce tons of free cash flow.

While some of the stocks are not growing earnings in any impressive fashion, the idea is that you are parking your cash in a low-volatility fund that has companies on solid footing.

That means companies with stable earnings, healthy dividends and strong balance sheets. These are mostly giant-cap stocks. Health care has about 16% of the assets held in the fund.

Top holdings include Automatic Data Processing Inc. (ADPVV), Southern Co (SO) and Johnson & Johnson (JNJ).

ETFs for a Bear Market: Guggenheim S&P 500 Equal Weight Utilities ETF (RYU)

ETFs for a Bear Market: Guggenheim S&P 500 Equal Weight Utilities ETF (RYU)Expenses: 0.4%

Guggenheim S&P 500 Equal Weight Utilities ETF (RYU) is a good choice for safe ETFs.

First, as far as utilities go, there is safety in knowing that utility companies are regulated. That means they are going to be allowed to charge a certain base amount for whatever energy they are providing to customers. They usually get to submit annual or bi-annual requests to boost rates, as well. That means reliable cash flow, and therefore, enough money to keep operations going and to pay a dividend.

However, the equal-weight aspect of RYU adds even more safety. Instead of being cap-weighted, where the largest utilities take up more of the asset base (the top ten account for 60% for cap-weighted index Utilities Select Sector SPDR ETF (XLU)), every company holds the same value to the index. That means the top ten only account for about 30% of the asset base, spreading out your risk even more.

Top holdings include Exelon Corporation (EXC), Centurylink Inc (CTL) and Frontier Communications Corp (FTR).

ETFs for a Bear Market: iShares Global Telecom ETF (IXP)

ETFs for a Bear Market: IShares Global Telecom ETF (IXP)Expenses:0.47%

IShares Global Telecom ETF (IXP) may seem like a weird choice for safe ETFs, because international companies can often be very unsafe places to invest one’s money. However, many international telecom companies like those in IXP are either monopolies, duopolies or state-owned.

In addition, like many telecom companies here, they may have a lot of debt, but they also generate tons of free cash flow. In tough times, you want that free cash flow.

Also, it’s not like you are running away from the U.S.A. The top two holdings are AT&T Inc. (T) and Verizon Communications Inc. (VZ), both of which are holding up in this market and have that solid cash flow. All the others are massive names belonging to developed nations with lots of people.

It also pays a 3.85% dividend. This year, IXP is actually up over 4%.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he had no position in any security mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/etfs-bear-market-ixp-ryu-acwv/.

©2024 InvestorPlace Media, LLC