Four Stocks Inside the ETF That’s Kicking the Market’s Ass
The markets’ response to the less-than-encouraging economic news flowing here, in Europe and China brings to mind the words of the great investment soothsayer Scooby-Doo: “Ruh-Roh.”
Just take a peek at the performance of broad market indexes in the second quarter.
We got a nice bounce after the big jobs report selloff on June 1st, but the road ahead is plenty foggy. Locally we’re now in “Will He?/Won’t He?” guessing mode, wondering if the sluggish jobs report and downward GDP revisions will push Federal Reserve Chairman Ben Bernanke and his merry Board to launch QE3. Europe seems ever determined to continue its long-running economic version of Waiting for Godot, and China has made its slowdown official by lowering a key lending rate.
If you’re girding for yet another roller coaster summer, getting a tad defensive can pay off. The obvious gambit is that defensive sectors will hold up better in falling markets. As you’d expect, the uber defensive consumer staples sector has indeed outperformed the broader market of late.
In fact, given that we’ve had two big downdrafts in the past year, playing defense paid off. The $1 billion Vanguard Consumer Staples ETF (VDC) almost doubled the market return; my proxy is the SPDR S&P 500 ETF (SPY).
Another approach to playing offense with a good defense is to focus on low-volatility stocks. Turns out that not only do lower volatility stocks -- which is just another way to describe value stocks – deliver a smoother ride over time, but they have also managed to outperform sexier high volatility (growth) stocks.
For example, the PowerShares S&P 500 Low Volatility ETF (SPLV) ranks all 500 stocks in the index by their standard deviation over the past 252 trading days; the 100 issues with the lowest volatility make it into the ETF.
Over the rocky past year SPLV has outpaced the SPDR S&P 500 ETF (SPY).
Not bad eh? So what’s inside SPLV’s portfolio? Here are the five largest holdings.
Only Procter & Gamble (PG) has failed to produce a strong index-beating performance. (YCharts editor Betsy Morris is all over the many reasons why: see here and here. So let’s drop P&G from the conversation.
And for the defensive minded they all serve up a sweet current dividend yield compared to the 1.9% payout for the S&P 500 index.
Moreover, all have a nice habit of increasing their dividend payouts.