Defensive Investing

    Published: 06-16-2009
    Views: 10,245
    Ron DeLegge, Founder of ETFguide, explains how to invest defensively by owning industry sector ETFs.

    Ron DeLegge: U.

    S. Stock Market has gained 9 out of the past 10 years and it's been an impressive run. But is it time for investors to start getting defensive? Stock market declines are inevitable, it's a normal part of investing, but when it happens that's usually the time that you want to be playing some defense.

    Now one of the easiest ways to get defensive while still staying invested is to own industry sector ETFs that are poised to perform in any kind of economic climate, even a difficult one. Take for example the Consumer Staples Sector SPDR ETF, that's had ticker symbol XLP.

    Now here is a perfect example of the Sector ETF that's defensive in nature but offers upside even when stocks get bumpy. XLP owns around 40, S&P 500 companies involved in drug and food retailing, along with beverage making, household and personal products.

    Regardless of whether the stock market is up or down, people are still going to buy food stuffs along with household cleaners, not to mention personal hygiene products. That's what makes XLP among the most defensive Sector ETFs anywhere. During the financial crisis period from 2007 to early 2009, the broader S&P 500 fell around 45% over that same period in XLP slid just around 20%, thus proving that defensive industry sectors like Consumer Staples can provide better relative performance.

    Some of the top stocks held by XLP are familiar names like Wal-Mart, Procter & Gamble and Coca-Cola.