Defensive Sector ETF: Claymores Defensive Equity Index Fund

Conventional wisdom suggests that you hold more defensive stock sectors during turbulent times. Traditionally, this means investing in health care, utilities and consumer staples, while avoiding technology, financials and the economically sensitive consumer cyclical segment.

Looked at another way, a 26% loss requires a 35% to reclaim the 2007 highs. Meanwhile, a 47% loss requires an 89% bull market run to return to glory.

The bear market math here is very important; that is, for those who prefer a bit less roller-coaster in their equity endeavors, smaller losses dont require the better part of 5-7 years. In contrast, a so-called long-term investor who stayed loyal to the most volatile segments is looking at Everest.

It does make one wonder why an exchange-traded fund hadnt yet captured a defensive equity index sooner. Nevertheless, Claymore does have the Sabrient Defensive Equity Index ETF (DEF).

As of Q3 end, DEF has roughly 50% invested in the traditional defensive areas mentioned above. Admittedly, thats a heavy weighting for things like staples and utilities.

However, less we believe that DEF is the answer to tough time equity exposure, we have to recognize that the fund is based largely on a historical paradigm; specifically, energy has often been a safer haven in the past. That explains its 17% weighting here. (Energy year-to-date, however, is down -40%.)

The Sabrient Defensive Equity Index ETF (DEF) certainly has potential if one prefers an all-in-one solution. Yet a quick look at the funds current weightings show that, in the current bear, it has not significantly outperformed the SPDR S&P 500 Trust (SPY) by more than a few percentage points.

Losing less is key, but losing a little bit less isnt a game-changer. If you have enough investing savvy, you might prefer selecting those defensive areas on your own, like SPDR Staples (XLP) and SPDR Utilities (XLU).

Disclosure Statement: ETF Expert  is a web log (blog) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc.. a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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