For investors concerned about market volatility on the horizon, given the level of uncertainty that remained around the pending U.S. election and a second wave of the coronavirus pandemic, there are a number of great defensive equity options for investors seeking to stay invested in stocks, but want less exposure to market risks. In this article, I’m going to discuss one exchange traded fund (ETF) that provides such defensive equity exposure.
The iShares Capped Utilities ETF (TSX:XUT) is an ETF that owns a broad basket of regulated utilities companies, providing investors with extremely stable dividend payouts and above average yield relative to fixed income assets such as bonds.
The defensiveness of this sector is derived in large part from the contracts utilities players have with their counterparties, essentially removing a significant portion of operation risk related to macroeconomic events. With revenues, and therefore profits, largely “locked in,” the yields of most utilities companies are among the safest of any publicly listed group of companies.
Conservative investors seeking a reasonable yield, as opposed to those reaching for a higher yield in riskier asset classes, ought to consider an ETF like this. This ETF is among my top choices for income-oriented investors with a predisposition to lower levels of risk in this heightened period of uncertainty we find ourselves in. This ETF also has a very low management expense ratio, meaning investors are able to take home the vast majority of the yield this ETF offers today.
Invest wisely, my friends.