Which ETFs to Consider in a Bear Market: Experts Evaluate

As the Fed tightens monetary policy and asset prices fall, investors may be wondering if there is something to hide in during a bear market.

As a continuation of our “What to do in a bear market” series, Yahoo Finance asked some experts such as ETFs, or exchange traded funds, to consider during these volatile times.

First, what is an ETF?

Think of exchange-traded funds similar to a basket of stocks that are traded on an exchange, just like a stock does. EFTs can contain stocks within a sector, bonds, crude oil, metals, currencies or any other type of investment. Exchange-traded funds have exploded in popularity over the years.

They are simple to buy and sell.

Are there any ETFs that investors should consider during these volatile markets?

Health care

“Healthcare ETFs represent the best opportunity for investors who want a defensive game to resist the bear market and would like to be prepared for one of the best long-term growth games for this decade: health innovation,” says Jamie Cox. , executive partner of Harris Financial Group.

Josaphet Ramos, 8, receives a swab from a healthcare worker at a COVID-19 mobile testing site hosted by the Manatee Florida County Department of Health in Palmetto, Florida, United States, August 2, 2021. REUTERS / Octavio Jones

IT security

When we think about business spending, we’ve heard comments that it’s starting to slow down. But we also know that the pace of cyber attacks continues to accelerate, particularly ransomware. Companies must continue to protect their crown jewels, ”Chris Versace, Tematica Research’s chief investment officer, recently told Yahoo Finance Live.

“This is a huge pain point for companies and they will have to spend to address it,” he said. “The best way we have is to gain all-round exposure using a cybersecurity ETF, be it CIBR (CIBR) or maybe even HACK (HACK).”

Semiconductor index

“The SOX (^ SOX) index was decimated and for a legitimate reason: the semiconductor cycle peaked months ago, valuations and expectations went crazy, and demand for chips shrank at a steady pace. unusually accelerated, ”says Professor Jeffrey Bierman, Chief Market Technician at TheoTrade.com.

An engineer holds a chip while posing for a photo, testing the reactions of different materials and shapes that may have on the chip at the Taiwan Semiconductor Research Institute (TSRI) in Hsinchu, Taiwan, February 11, 2022. Image taken February 11, 2022 REUTERS / Ann Wang

An engineer holds a chip while posing for a photo (REUTERS / Ann Wang)

“That said, the SOX index, which is typically characterized as a growing industry game, has been reduced to a VALUE industry game. But make no mistake, many of the components that make up SOX (Inetl (INTC), Micron (MU), Qualcomm (QCOM), for example) have far exceeded their long-term historical valuations to the downside and, as a result, have they become business opportunities in the cellar and not just bottom fishing games “, he added.

Several ETFs follow the PHLX Semiconductor Index, some of which include SMH (SMH) and SOXQ (SOXQ).

Are there ETFs to steer clear of during a bear market?

Cox of Harris Financial Group said that “most of the damage is done to sectors that people should avoid in a bear market. Among them are discretionary consumer goods and technology. communications services have performed poorly during this bear market. ”

He added: “Once a stalwart during many bear markets, given their utility characteristics and high dividend payouts, that’s hardly the case today. The stiff competition and high capital outlay for 5G has made the industry one of the worst for 2022. ”

SPYDER S&P Homebuilder ETF (XHB)

“As long as higher interest rates are likely, housing-related and residential-related stocks will not be kept in check,” said Bierman of TheoTrade.com.

“Mortgage rates are approaching 6% and consumers reign in their thirst for home searches. Sure, ratings on a list of home providers like KBH, PHM and DHI seem to be at the bottom.

“However, the real estate market is a cyclical, not continuous market, influenced mainly by the wealth effect of the stock market which has been temporarily reduced and the affordable mortgage rates that have yet to peak. Don’t jump into buying this sector alone. because he is depressed “.

SPYDER Gold Equities ETF (GLD) – “For too long, strategists and business media pundits have argued that gold is a hedge against rising inflation and / or falling stock markets,” Bierman added. “News flash: This is categorically false or misunderstood. Gold is a prisoner of the US Dollar In other words, there is a phenomenon of relationship or inverse correlation between the precious metals and the US dollar index (DX-Y), as long as the US dollar against the foreign currencies will not only reverse for a few weeks, but technically drop below $ 1.00 gravity point (par level), the price of gold will likely generate hiccups, but will not gain upward traction. ”

Ines Ferre is a Yahoo Finance reporter who covers the US stock market. Follow her on Twitter at @ines_ferre.

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