How to get your portfolio defensive with ETFs ahead of unpredictable times

Investing with moomoo wrote a column · Jun 11, 2021 04:40

How to get your portfolio defensive with ETFs ahead of unpredictable times

If the amount of risk in your portfolio makes you uncomfortable, you could build a conservative portfolio with ETFs as they are highly effective in risk control. A defensive portfolio could help you reduce losses in a down market, while still be able to capture some investing profit.

Deal with possible market downturn with a defensive portfolio

A surging CPI data could be a potential factor that triggers a downturn. In history, three out of four times CPI rise above 4% caused a downturn in the market.

US core CPI in May could reach 3.5%, hitting a 28-year high

To build a defensive ETF portfolio, there are a couple of factors that you should consider before making your investment choice:

Select low Beta ETFs

The most academic way to select any defensive investing target is to select an investing target with a low beta.

Beta is a measure of the volatility of the system market risk or non-diversifiable risk. A beta coefficient normally measures the volatility of an individual stock or ETF compared to the systematic risk of the S&P500 index.

A ETF with a beta lower than 1, which is the beta for the overall market, indicates that it would theoretically move less volatile compared to the market. Thus, help your portfolio to be more stable when there is a market downturn.

Select defensive sectors ETFs

Selecting a less volatile sector is also important. There are three main defensive sectors: Utilities, Consumer Staples, and Health Care. You could find ETFs tracking any sector that you are interested in.

Source: moomoo desktop platform

Discover emerging market ETFs

Diversify your portfolio by invest in emerging market ETF. Economic condition is various among different countries and regions. It's a shame to miss out on a potential opportunity and also important to diversify a portfolio so that you won’t break all your eggs in one basket.

“Don't pass up something that's attractive today because you think you will find something better tomorrow.”

— Warren Buffet's speech at Columbia University, Nov. 12, 2009