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2 Defensive ETFs For Times Of Heightened Volatility

By (Tezcan Gecgil/ )ETFsJan 21, 2022 03:59AM ET
2 Defensive ETFs For Times Of Heightened Volatility
By (Tezcan Gecgil/ )   |  Jan 21, 2022 03:59AM ET
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Volatility and declining equity prices have dominated financial news since the start of the new year. The Dow Jones, the S&P 500, and the NASDAQ 100 declined 4.4%, 5.9%, and 9.5%, respectively.

While short-term profit-taking was expected, especially around this busy earnings season, many retail investors wonder if broader indices, particularly tech names, could fall even further.

Last year the market benefited from the Fed’s actions and a recovering economy. Many widely-followed US stocks, especially growth names, ended 2021 at lofty valuations.

Now, the perspective of tighter monetary policy by the Federal Reserve has pushed the US 10-year Treasury yield above 1.8%. In December, it was well below 1.4%.

As Wall Street typically gets the jitters when yields increase, the early part of 2022 should continue to see pressure on equities when investors need to manage expectations.

Today’s article introduces two exchange-traded funds (ETFs) that could appeal to readers looking to park some cash for now or add yields to their holdings. They would also help lower the overall portfolio volatility as well.

1. iShares Morningstar Multi-Asset Income ETF

  • Current Price: $23.53
  • 52-week range: $23.16 - $24.50
  • Dividend yield: 3.85%
  • Expense ratio: 0.59% per year

Our first fund, the iShares Morningstar Multi-Asset Income ETF (NYSE:IYLD), is a multi-asset fund that invests in other iShares ETFs managed by the leading asset manager BlackRock (NYSE:BLK). These asset classes include bonds (60%), stocks (20%) as well as alternative income sources (20%). The fund aims to achieve high current income and some capital appreciation.

IYLD Weekly Chart
IYLD Weekly Chart

IYLD, which has 12 holdings, tracks the Morningstar Multi-Asset High Income Index returns. The ETF was first listed in April 2012.

The top five ETFs in IYLD make up over 65% of the fund. These names include:

  • iShares Preferred and Income Securities ETF (NASDAQ:PFF)
  • iShares MBS ETF (NASDAQ:MBB)
  • iShares 10-20 Year Treasury Bond ETF (NYSE:TLH)
  • iShares Emerging Markets Dividend ETF (NYSE:DVYE)
  • iShares JP Morgan EM Local Currency Bond ETF (NYSE:LEMB)

IYLD also invests in emerging markets government bonds issued by emerging market countries, the US real estate sector, and dividend-paying US stocks.

Since the start of the year, IYLD is down 2.0%. In other words, the fund offers low volatility and some yield, which might be an appropriate mix for passive income seekers in the current investing landscape.

2. SPDR ICE Preferred Securities ETF

  • Current Price: $42.04
  • 52-Week Range: $41.91 - $44.26
  • Dividend Yield: 5.11%
  • Expense Ratio: 0.45% per year

The SPDR® ICE Preferred Securities ETF (NYSE:PSK) seeks to provide exposure to preferred securities. The fund was first listed in October 2013.

PSK Weekly Chart
PSK Weekly Chart

PSK, which has 149 holdings, tracks ICE Exchange Listed Fixed & Adjustable Rate Preferred Securities Index. The top 10 holdings account for close to 16% of net assets of $1.34 billion. The portfolio is weighted heavily toward financials (69.14%), followed by utilities (11.69%), real estate (7.29%), and communication services (4.76%).

Preferred securities from Citigroup (NYSE:C), Capital One Financial (NYSE:COF), AT&T (NYSE:T), Allstate (NYSE:ALL), Duke Energy (NYSE:DUK), and MetLife (NYSE:MET) are among the top holdings. They are names with good credit ratings.

So far in January, PSK has declined by about 1.4%. If the risk-off mode continues on Wall Street, funds that give access to preferred securities could deserve further due diligence. The current yield is well over 5%, whereas the S&P 500 pays about 1.2% in dividends.

2 Defensive ETFs For Times Of Heightened Volatility

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2 Defensive ETFs For Times Of Heightened Volatility

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Timothy Spires
Timothy Spires Jan 21, 2022 2:12PM ET
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