Make Money in Powerful Defensive Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the economy to keep freaking us all out for the foreseeable future and you'd like to invest in solid defensive companies that tend to hold up in all kinds of environments, the Guggenheim Defensive Equity ETF (NYSE: DEF  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is 0.65%, which is a bit higher than many ETFs, but still considerably lower than the typical stock mutual fund. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has outperformed the S&P 500 since its inception in 2006. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 32%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Plenty of defensive companies had strong performances over the past year. Sherwin-Williams (NYSE: SHW  ) , for example, surged 58%. It has had its rating cut by at least one Wall Street analyst, but that's most likely due to valuation concerns instead of performance worries. It might not seem like the most defensive company, as sagging economies often feature soft housing markets, with fewer homes to spruce up with paint -- but the company also serves commercial and industrial markets. Even in a down economy, if airplanes have been ordered and are being built, they'll need to be painted. It's also growing in developing economies such as Brazil.

Duke Energy (NYSE: DUK  ) , meanwhile, gained 29%. Utilities are a classic defensive business, for no matter what the economy is doing, we all want electricity to keep our refrigerators humming and the lights on. The company has been benefiting from low natural-gas prices and is generating electricity via diversified means, such as hydroelectric power and wind power, and is boosting its involvement in renewable energies.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Annaly Capital Management (NYSE: NLY  ) shed 5%, for example, but it's also sporting a whopping 13% dividend yield. It makes money investing in mortgage-backed securities and is seen as employing less risk than some of its peers. Still, there is some risk, as it benefits from low interest rates and those will likely rise one of these days. Mortgages are defensive because as long as you can afford to keep making them, your monthly payments are not optional.

PepsiCo (NYSE: PEP  ) may be a specialist in fizzy drinks, but its stock has been flat over the past year. It's defensive, though, because while financially pressured consumers might put off buying that new washing machine or car, they'll likely keep quaffing their favorite drinks and soothing their frayed nerves with pretzels. The company has been growing its revenue by an annual average of about 13% over the past five years, and its earnings by about 4%. It's also expanding around the world, such as via its acquisition of Russian company Wimm-Bill-Dann. Shareholders might be impatient for more stock movement, but while they've waited, PepsiCo has yielded about 3.2%, and has a five-year average dividend growth rate of more than 10%.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Defensive stocks can help you sleep at night. So can the companies our analysts present in our special free report, "3 American Companies Set to Dominate the World."

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Annaly Capital Management, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Annaly Capital. Motley Fool newsletter services have recommended buying shares of Annaly Capital and Sherwin-Williams. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1907018, ~/Articles/ArticleHandler.aspx, 10/28/2016 2:36:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,153.55 -16.13 -0.09%
S&P 500 2,126.35 -6.69 -0.31%
NASD 5,189.78 -26.19 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 2:21 PM
DUK $78.70 Up +0.28 +0.36%
Duke Energy CAPS Rating: ***
NLY $10.17 Down -0.03 -0.25%
Annaly Capital Man… CAPS Rating: ****
PEP $106.97 Up +0.34 +0.32%
PepsiCo CAPS Rating: ****
SHW $245.73 Down -1.87 -0.76%
Sherwin-Williams CAPS Rating: ****