Investors flock to defensive ETFs as market volatility increases

Anxious investors are pouring money into exchange-traded funds tied to defensive sectors, seeking safety in a market that continues to be plagued by worries about rising interest rates.

According to


data through April. That amount has already exceeded $42 billion in corporate capital inflows for all of 2021 and is also on track to lead the 2020 total of $75 billion.

US markets show investors expect inflation to ease from the current 40-year high, but its decline will be slower than previously thought. The WSJ’s Dion Rabouin explains why and what that could mean for Americans. Image: Spencer Platt / Getty Images

“Investors want safety, they want security, and they want to go somewhere where they feel like their money will be protected,” said Ryan Jackson, research analyst for passive funds at Morningstar. a little more protection, even in a volatile environment.”

Persistent inflationary pressures, Geopolitical chaos and worries about a potential recession have dragged the S&P 500 down 13% this year. The tech-driven Nasdaq composite fell even further, 21%. Then have to endure it worst session since June 2020 on Thursday, with investors worried about the pace of the Federal Reserve’s interest rate hike campaign.

ETF in consumer staples and healthcare groups saw some of the biggest cash flows at the end of the year. Essentials, healthcare, utilities and real estate are seen as safe roles as consumers tend to pay for food, hospital bills, electricity and rent before making a purchase. optional.

The SPDR Consumer Goods ETF, which tracks shares of 34 companies in industries from tobacco to food and beverages, recorded $1.25 billion in net inflows in April, the most since from January. Shares of cigarette maker Marlboro

Altria Group Inc.

and grocer

Kroger Co.

was one of the best performers in this year’s fund. Both stocks have gained nearly 20%, while the fund itself has slipped 0.6%.

Meanwhile, the SPDR ETF for the healthcare sector recorded $1.7 billion in April, the most since July 2021. The SPDR ETF for the utilities sector had $923 million in Last month, the SPDR ETF for real estate received $306 million. These inflows are the most since January 2022 and December 2021, respectively.

“These funds are built essentially to provide smooth rides for investors. I think of them as domestic cats — sometimes they’ll drag a rodent into the house and they’ll do what you’d expect most of the time, but sometimes they’ll misbehave because that’s their nature. ,” said Mr. Jackson.

New Netflix Action Thriller ‘The Gray Man’, Starring Chris Evans. Tech-based companies like Netflix are part of the S&P 500’s media-services segment, which is down 24% this year.


Paul Abell / Associated Press

Behind the energy group, which has grown 43% this year, the utilities and consumer staples segments have performed best in the S&P 500 this year, falling below 0.1% and 0.6%, respectively. The technology sector fell by 19% and the media-services group – which includes technology-based companies, such as

Netflix Inc.


Alphabet Inc.




Meta . Platform Inc.

—Has decreased by 24%.

The Fed on Wednesday approved a increase interest rates by half a percentage point—The biggest since 2000 — and plans to shrink a $9 trillion asset portfolio as officials begin setting up a campaign to slow inflation to a four-decade high. Tech stocks are particularly sensitive to rising rates because they are priced based on expectations of future growth.

“We are not in a recession camp, but we think there will be pockets in the bull.” [market] where you see a recession or much slower growth,” said Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services Inc.

Mr. Lerner said his firm has recommended market sectors such as staples, healthcare stocks and real estate investment trusts to investors this year as a hedge against global growth slowdown or an aggressive Fed.

Other investors who are betting that inflation will remain elevated are turning to commodity-focused funds. Russia’s invasion of Ukraine has sent commodities ranging from aluminum to wheat to new highs this year. Commodities tend to rise with inflation and act as a hedge against the fall of other assets in the portfolio.


VanEck Gold Miners ETF

has grown 8.1% this year and received $432 million in net inflows in April, the most since June 2021. Invesco DB Commodity Index Tracking Fund, which holds commodities futures in energy, precious metals, industrial and agricultural metals, rose 36%.

Cases of Covid-19 increase in China and stronger US dollarhowever, pulled some items off their highs.

“I would take a ‘belt and hang’ approach, which means I would give up that less volatile in the market and my risk would be that I would give up some Mark Luschini, Investment strategist at Janney Montgomery Scott, said about the amount of commodities his company holds.

Write to Hardika Singh at [email protected]

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