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Investors are rushing into defensive ETFs as market turbulence grows

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Troubled investors are pouring money into exchange-traded funds linked to the defense sector in search of security in a market that is still worried about rising interest rates.

Net inflows into defense ETFs – or those related to basic consumer goods, healthcare, utilities and real estate, as well as precious metals, treasuries and commodities – totaled $ 50 billion this year.

Morning Star

data to April. That amount has already exceeded the group’s inflow of $ 42 billion for the entire 2021 year and on the way to the fact that in 2020 the total of $ 75 billion is also $ 75 billion.

U.S. markets are showing that investors expect inflation to fall from its current 40-year high, but its decline will be slower than previously thought. Dion Rabuen of the WSJ explains why and what this could mean for Americans. Image: Spencer Platt / Getty Images

“Investors want security, they want security, and they want to go somewhere where they feel their money will be a little more secure, even in a turbulent environment,” said Ryan Jackson, a passive funds analyst at Morningstar.

Steady inflationary pressure, geopolitical upheavals and fears of a potential recession have pulled the S&P 500 down 13% this year. The technology-oriented Nasdaq Composite Index fell even more, from 21%. The latter suffered his worst session since June 2020 on Thursday, when investors are concerned about the pace of the Federal Reserve’s rate-raising campaign.

ETFs in consumer staples and health groups have observed some of the largest influxes in recent times. Basic groceries, healthcare, utilities and real estate are considered safety games because consumers tend to pay for food, hospital bills, electricity and rent before shopping on their own.

The Consumer Staples Select Sector SPDR ETF, which tracks the shares of 34 companies in the tobacco to beverage and beverage sectors, recorded $ 1.25 billion in net inflows in April, the highest since January. Shares of cigarette maker Marlboro

Altria Group Inc.

and a grocer

Kroger Co.

are some of the best performers in the fund this year. Both stocks jumped nearly 20% and the fund itself fell 0.6%.

Meanwhile, in April, the Health Sector SPDR ETF recorded an inflow of $ 1.7 billion, the highest since July 2021. Net flows in the SPDR ETF in utilities last month were $ 923 million, and in the SPDR Real Estate ETF Select Sector SPDR received $ 306 million. These revenues were highest from January 2022 and December 2021, respectively.

“These funds are set up mainly to offer investors a smooth ride. I consider them domestic cats – they are occasionally dragged into a rodent’s home, and will more often than not do what you expect, but from time to time they will behave badly because it is in their nature, ”Mr Jackson said.

New Netflix action movie “Gray Man” with Chris Evans. Technology-focused companies such as Netflix are in the S&P 500 communications services segment, which has fallen 24% this year.


Photo:

Paul Abel / Associated Press

After the energy group, which grew 43% this year, the utilities and consumer goods segments are the best in the S&P 500 this year with less than 0.1% and 0.6% respectively. The technical sector decreased by 19%, and the group of communication services, which includes technology companies, such as

Netflix Inc.

,

Alphabet Inc.

and

Facebook

parental

Meta-platforms Inc.

– fell by 24%.

The Fed on Wednesday approved Fr. raising the interest rate by half a percentage point– the biggest since 2000 – and a plan to cut its asset portfolio by $ 9 trillion as officials stepped up a campaign to slow inflation to four decades. Technical stocks are particularly sensitive to rising rates because they are valued based on expectations of growth in the distant future.

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

Mr Lerner says his firm has recommended investors this year to market industries such as commodities, health stocks and investment trusts in real estate, such as insurance against slowing global growth or an aggressive Fed.

Other investors who are betting that inflation will remain high are turning to commodity-focused funds. Russia’s invasion of Ukraine has led to new highs this year for raw materials from aluminum to wheat. Commodities tend to grow along with inflation and serve as a hedge against declining other assets in the portfolio.

The

VanEck Gold Miners ETF

grew 8.1% this year and received $ 432 million in net flows in April, the most since June 2021. The Invesco DB Commodity Index Tracking Fund, which holds futures on commodities in the energy, precious metals, industrial metals and agriculture categories, jumped 36%.

Covid-19 cases are rising in China and a stronger US dollarhowever, some goods were removed from the maximum.

I’m going to take advantage of an approach that’s kind of a “strap and suspend” approach, which means I’ll be less volatile in the market for a long time, and my risk is that I’m giving up some up if all of a sudden this market starts rally, ”said Mark Luscini, Jenny Montgomery Scott’s chief investment strategist, about his firm’s commodity reserves.

Write to Hardik Singh at hardika.singh@wsj.com

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