Many Flavors Of Defensive Equity ETFs

January 16, 2019

Real Asset ETFs

The FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) is Northern Trust’s FlexShares biggest ETF, with $5.17 billion in total assets. It’s an equity fund focused on companies that produce, manage or operate all sorts of global natural-resources-related businesses.

The strategy has some caps to limit portfolio concentration on any specific segment, and offers access to companies involved with everything from energy to oil to agriculture to metals to timber and water. It costs 0.46% in expense ratio.

 

Source: ETF.com

 

Natural resources-linked companies aren’t immune to market downturns. GUNR is an equity portfolio 100% allocated to equities at all times. But some argue that global demand for so-called real assets (natural resources and commodities) keeps on growing in the aggregate, and these companies could deliver growth (and resiliency) at a time when other sectors of the economy may struggle.

GUNR is the largest ETF in this segment, but there are others, such as the IQ Global Resources ETF (GRES), the iShares North American Natural Resources ETF (IGE) and the SPDR S&P Global Natural Resources ETF (GNR), to name a few.

 

Year-to-Date Performance vs. SPY

Chart courtesy of StockCharts.com

 

Inverse Equity ETFs

Finally, if you are a market bear of full conviction, you can always short U.S. equities with inverse ETFs, betting on the downside. An inverse ETF shouldn’t be called portfolio “protection,” but it’s certainly a tool at your disposal if you believe the stock market is going down.

The biggest strategy in this segment is the ProShares Short S&P500 (SH), with $2.3 billion in total assets. SH is a one-day bet against the S&P 500—the fund delivers the inverse exposure to the index for one trading day. It costs 0.89%.

For additional leverage, there are also funds like the ProShares UltraShort S&P500 (SDS), which offer 2x the inverse results of the S&P 500 on a given day, or the ProShares UltraPro Short S&P500 (SPXU), serving up 3x inverse exposure to the index for one day.

These are just some of the many U.S. equity inverse ETFs you can choose from—all designed as short-term trading tools. Here’s their performance relative to the S&P 500 in 2019:

 

Chart courtesy of StockCharts.com

 

This list of equity-based defensive plays isn’t exhaustive or comprehensive. It’s merely a conversation starter about portfolio protection, and the many ETF tools available to that end.

Do you have a favorite “defense” ETF? If so, I’d love to hear about it.

Contact Cinthia Murphy at [email protected]

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