AllianceBernstein - To Guard Against Equity Downturns

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When it comes to slicing and dicing the investable universe, ETFs present themselves as appealing tools capable of delivering cost-efficient exposure to virtually every corner of the market. Broad-based funds are a popular way to tap into either equities or bonds, although the evolution of the ETF industry has also brought forth hundreds of products that work to provide exposure to particular sectors or countries.

Furthermore, there are even ETFs which are designed to exclude exposure to particular corners of the market, offering up an even more granular way to round out exposure.

Be sure to try out the Free ETF Screener.

The most recent global economic downturn showcased the inherent volatility of the financials sector, across developed and emerging markets alike. Luckily, the ETF universe is vast and investors have options when it comes to achieving diversified exposure, while at the same time avoiding the financials sector [see Financials Free ETFdb Portfolio ].

Under The Hood: Ex-Financials ETFs

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Industry veteran WisdomTree offers a pair of ex-financials ETFs, making it easy for investors to tap into equities, at home and abroad, while at the same time avoiding exposure to companies in the financials sector. Additionally, these ETFs also offered targeted exposure to high dividend-yielding securities, further increasing the appeal among conservative investors looking to tame their portfolio’s volatility:

  • Dividend Ex-Financials Fund (DTN B+): This ETF consists of approximately 90 U.S. stocks from each and every corner of the market, besides the financials sector. DTN’s portfolio is well-balanced, featuring fairly equal allocations to industrials, utilities, consumer defensive, communication services, as well as health care stocks.
  • International Dividend Ex-Financials Fund (DOO B-): This ETF’s portfolio is entirely international; top holdings by country include the United Kingdom, Australia, France, Japan, and Switzerland. DOO is well-rounded from a sector perspective as well similar to DTN. [see also Monthly Dividend ETFdb Portfolio ETFdb Pro Members Only].

Both of these offering are available for commission-free trading to E*TRADE account holders.

iShares also offers a lineup of sector-specific bond ETFs that allow investors to steer clear of the financials sector when it comes to their fixed income exposure:

  • Industrials Sector Bond Fund (ENGN): This ETF offers exposure to the performance of U.S. dollar-denominated publicly-issued investment-grade U.S. corporate bonds in the industrial sector.
  • Utilities Sector Bond Fund (AMPS): This ETF offers exposure to the performance of U.S. dollar-denominated publicly-issued investment grade corporate bonds in the utility sector.

The Bottom Line

An ex-financials ETF may be a good option for investors that are bearish on the financials sector, but still wish to maintain broad-based exposure to the equity market.

Follow me on Twitter @SBojinov.

Disclosure: No positions at time of writing.

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