Can You Defend Your Portfolio in One Fell Swoop?

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If you're familiar with the world of exchange-traded funds, you know that for seemingly every index of stocks out there, there's at least one corresponding ETF. That's generally good for us investors -- if we like what we see in an index, we can often invest in it easily.

I just learned of an interesting new index -- one that we can expect to see an ETF for in the near future, I'd bet. It's called the ETFI Highly Defensive PerformIdex, and it aims to track companies that are relatively stable -- and big -- thus providing investors some protection against market swoons. Initially, it included around 30 North American companies, but it soon added a bunch from Europe as well.

The initial 30 companies included Procter & Gamble (NYSE: PG  ) , CVS Caremark (NYSE: CVS  ) , Philip Morris (NYSE: PM  ) , and Exelon (NYSE: EXC  ) . When expanded, the roster had grown to include Diageo (NYSE: DEO  ) , Teva Pharmaceuticals (Nasdaq: TEVA  ) , and Vodafone (NYSE: VOD  ) . The index holds top dogs in industries such as telecom, consumer staples, utilities, commodities, and health care.

The index's beta is a low 0.58, suggesting that the fund should be just over half as volatile as the overall stock market on average.

What to do
Should you snap up shares of this ETF, then? Well, no -- first of all because as far as I know, none are available yet.

What's more, you might think that a collection of large-cap companies meant to defend portfolios would have a sizable dividend yield. Alas, at a recent 3.0%, the average yield for the defensive index is considerably lower than that for dividend-focused investments such as the iShares DJ Dividend (DVY) ETF, at 4.7% -- although that ETF has fallen more over the past year than the PerformIdex.

A final concern for me is that since the PerformIdex companies are so big, with an average market cap north of $70 billion, they may not appreciate too rapidly. (It's hard for elephants to run quickly, after all.)

So if you're interested, keep your eye out for an ETF based on this index -- but also look at dividend payers as defensive plays.

Longtime Fool contributor Selena Maranjian owns no shares of any companies mentioned in this article. Diageo is a Motley Fool Income Investor pick. Try our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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