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Consider This ETF, Sectors As Possible Protection if Markets Pull Back

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After an epic run in 2019, stocks have struggled in the first week of trading, recovering some on Monday. Broadening geopolitical tensions from the Middle East, as well as continuing political concerns at home have crept in and stifled the market’s impressive rally to end out last year.

Jim Iuorio, managing director of TJM Institutional Services, feels that if the S&P 500 dips below 3,200, it could go all the way down to 3,025. The S&P 500 fell 0.2% to around 3,225 on Monday morning before climbing back into the close.

For investors looking who want to remain in stocks but hedge against such uncertainty, Morgan Stanley is recommending buying high-quality large caps and defensive stocks, and eschewing expensive growth and consumer discretionary stocks.

“Don’t reach for high beta or too much cyclicality,” Mike Wilson, the bank’s head of U.S. equity strategy, said in a note Monday. “Continue to be choosy on growth stocks with quality earnings and cash flows that aren’t egregiously overvalued… In the near term as markets potentially correct, defensive stocks should have a good run/catch-up as US rates fall on geopolitical concerns and growth doubts.”

For those investors looking for an ETF that allows them to stay invested, the Invesco Defensive Equity ETF (DEF) could be a suitable choice.

According to Invesco, “the Invesco Defensive Equity ETF (Fund) is based on the Invesco Defensive Equity Index (Index). The Fund will invest at least 80% of its total assets in securities that comprise the Index. The Index is designed to provide exposure to securities of large-cap US issuers. The Index uses a rules-based approach to select companies that potentially have superior risk-return profiles during periods of stock market weakness while still offering the potential for gains during periods of market strength. The Index is computed using the gross total return, which reflects dividends paid. The Fund and the Index are rebalanced quarterly.”

“I put this name up earlier— this is the Invesco Defensive Equity ETF (DEF). It looks for safety plays, but I think with a more modern approach. So it looks for stocks with really high betas. It kicks those out of the S&P 500 it looks for stocks that have done poorly in downturns. It kicks those out of the S&P 500 then it looks at what was left and only picks those with really long-term sustainable revenue models. You end up with 100 equal-weighted stocks, with pretty broad sector exposure. I think it’s a great play for lot of investors who want to stay invested in the equity market,” said Dave Nadig, managing director of ETF.com on CNBC.
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