Ratchet Back The Risk With These ETFs

Beta, the measure of a portfolio's risk relative to the broader market, can really be a four-letter word in times like these when the folks in Brussels and Washington, D.C. don't seem to have any idea which end is up. And for better or worse, there are plenty of volatile constituents populating the ETF universe, but that doesn't mean investors looking to reduce their portfolio's beta should ignore ETFs. Quite the contrary. There are plenty of ETFs that can help investors reduce risk without making a big sacrifice in terms of alpha. Here are some solid ideas from the fine folks at S&P Equity Research that conservative investors can embrace in these volatile times. All the ETFs that make the S&P list feature betas of 0.7 or less. Consumer Staples Select Sector SPDR XLP: No surprise here. XLP is the big kahuna of consumer staples ETFs with nearly $4.2 billion in assets under management. The ETF features an expense ratio of just 0.2% and as one home to Procter & Gamble PG, Coca-Cola KO, PepsiCo PEP and Wal-Mart WMT, among others, you know this ETF won't cause a loss of sleep. Health Care Select Sector SPDR XLV: We opined last week that there is more to the world of health care ETFs than just XLV, but with almost $4.3 billion in AUM and a favorable 0.2% expense ratio, investors that are not health care gurus, but want exposure to the sector would do well to cozy up to XLV. XLV has a beta of 0.68 and is “overweight” rated by S&P. The top three holdings are Dow components Johnson & Johnson JNJ, Pfizer PFE and Merck MRK. iShares Dow Jones U.S. Pharmaceuticals Index Fund IHE: IHE also garners an “overweight” rating from S&P and its top three holdings are the same as its rival fund. The beta here is a tick higher at 0.69, but the expense ratio is more than double of XLV's. Utilities Select Sector SPDR XLU: S&P notes in its report that XLU left something to be desired in terms of performance, but the 0.2% expense ratio is compelling and the ETF scored well in S&P's risk considerations category. Plus, XLU has a trailing yield of nearly 4%. Also “overweight” rated. Vanguard Utilities Index Fund VPU & the Vanguard Consumer Staples ETF VDC: VPU outperforms XLU, but has the higher beta at 0.6 compared to 0.58 for its SPDR rival. VDC has outperformed XLP on a year-to-date basis as well, but surprisingly, both Vanguard funds are more expensive than the comparable SPDR ETFs. VPU is the better utilities bet, but for the active trader, XLP makes more sense as its liquidity is vastly superior to that of VDC. WisdomTree Japan Hedged Equity Fund DXJ: DXJ is ranked “market weight” in both Performance Analytics and Cost Factors. Within those categories, it fares relatively well in S&P's Fair Value system, and in bid/ask spread, according to S&P. The ETF garners an “overweight” overall by S&P, but its year-to-date performance has lagged that of the iShares MSCI Japan Index Fund EWJ.