The accompanying table [click to enlarge] includes an updated version of the ETF Innovators [ETFI] ETFI Highly Defensive PerformIdex of 36 companies based in the U.S., Canada, and Europe with market caps over $10B, which are the leaders by market cap in their defensive industry groups. This update includes a 10% reduction in the number of companies with an equal distribution of 12 each from consumer staples and healthcare, with the remaining 12 companies chosen from a variety of defensive industry groups.
(A) Mass Merchant Discount Retailer (1)
(B) Consumer Staples (12) – Non-Food/Beverage (2), Processed & Packaged Foods (3), Tobacco (2) (1 U.S. + 1 ex-U.S.), Alcoholic Beverages (1), Non-Alcoholic Beverages (2), Diversified Products (2)
(C) Telecom Services (4)
(D) Cable Television & Internet Access Providers (1)
(E) Utilities (2)
(F) Fast Food Restaurants (1)
(G) Commodities (2): Gold Mining (1) + Agri-Biotech (Seeds & Fertilizers) (1)
(H) Healthcare (12) – Top Seven Companies by Market Cap (7), Biotech (3) Medical Devices (excluding stents) (1), Generic Drugs (1)
(I) Aerospace (Non-Commercial) & Defense (1)
Over the past year, the index has outpaced its benchmark ETFs on a total return basis with a loss of 16.6%, including the Sabrient/Claymore Defensive ETF (DEF) (-34.6%), Consumer Staples Sector SPDR (XLP) (-18.3%), Healthcare Sector SPDR (XLV) (-31.3%), Utilities Sector SPDR (XLU) (-27.1%), Dow Jones Global Titans (DGT) (-39.7%), and the iShares Dow Jones Select Dividend (DVY) (-35.7%). Also, the equally-weighted defensive index is only 59% as volatile as the overall market with an average market cap of nearly $75B and above-market dividend yield of 3.4%, with a diversified mix of companies and industry groups chosen to outpace benchmark ETFs which focus on a single theme such as dividends, healthcare, or consumer staples.
Among the 36 component companies, I believe Altria Group (MO) and Pfizer (PFE) are defensive dividend, value buys at current levels as each company currently pays a dividend of $1.28 per share annually – resulting in bloated yields of 8.5% and 8%, respectively. Four companies in the index have posted gains on a total return basis (stock price change + dividend yield) over the past year despite unprecedented volatility and major market declines – including a diversified mix of Wal-Mart (WMT), General Mills (GIS), McDonalds (MCD), and Southern Company (SO).
In the healthcare sector, several companies have posted single-digit share price declines over the past year, demonstrating relative strength compared to major losses in the overall market and healthcare sector – including Amgen (AMGN), Genentech (DNA), Gilead Sciences (GILD), Abbott Labs (ABT), and Teva Pharma (TEVA). Among telecom services, AT&T (T), Verizon (VZ), Vodafone (VOD), and Telefonica (TEF) have an average dividend yield over 6%, but this was offset by an average stock price decline of nearly one-third.
Click here for links to my previous articles on defensive investing strategies and indexes or related topics on dividends and healthcare .
$72.24 (12/03/08)
