Page 12 - Kiplinger's Personal Finance - November 2018

INVESTING

shares, in both actively managed funds tion potential, they often pay above- portfolio hedge is easy enough, given
and passive (index) funds, says CFP average dividends, which increases the proliferation of low-cost sector in-
Wes Shannon at SJK Financial Plan- their appeal to investors when the dex funds. If you like the prospects for
ning. In the S&P 500, the top four market slumps. banks as interest rates rise, consider
stocks by market value—Apple, Micro- What’s key to remember, though, FINANCIAL SELECT SECTOR SPDR ETF (XLF,
soft, Amazon and Alphabet—account is that “in a bear market, there is no $28). Another idea: INVESCO S&P 500
for an outsize 13% of the entire value place to hide,” says Sam Stovall, chief EQUAL-WEIGHT HEALTH CARE ETF (RYH, $201)
of the index. Morningstar’s premium investment strategist at CFRA. “De- is a way to focus on medical-related
membership ($199 yearly) includes fensive stocks don’t go up in price in shares. Both funds are in the Kiplinger
an “x-ray” tool that will tell you the a bear market. They just lose less.” ETF 20, the list of our favorite ETFs.
largest holdings in any fund and show CFRA looked at stock price moves of Another defensive option is to add
your total exposure to any stock across major industry sectors in the S&P 500 a diversified value-oriented stock fund
your entire portfolio. during the 11 bear markets since 1946. to your asset mix. Two low-cost, ac-
It used month-end prices for sector in- tively managed value funds to consider
PLAYING DEFENSE dexes, which didn’t capture the exact from the Kiplinger 25, the list of our
In Wall Street lingo, defensive stocks bull market peaks or bear market lows favorite no-load mutual funds, are
are ones that are expected to hold but came close. Using that data, CFRA DODGE & COX STOCK (DODGX) and T. ROWE
up better than the average stock in a calculated an average post–World War PRICE VALUE (TRVLX). Indexing fans might
broad market sell-off. Those tend to be II bear market loss of 25%. The most look at VANGUARD VALUE ETF (VTV, $112). It
stocks in slower-growing industries— defensive sector in those 11 bear peri- owns all the stocks considered value
think utilities, energy firms, finan- ods was consumer staples, which aver- names in the S&P 500.
cials, drug makers and companies that aged a loss of just 10%. The second- You might also consider a fund that
make consumer staples, such as deter- most-defensive sector was health care, invests in big-name, dividend-paying
gent, toothpaste and packaged foods. with a 13% average loss. Third was stocks. But rather than focusing on
Many are considered value stocks be- utilities, down 20%. Industrial stocks current yield, choose a fund that tar-
cause they trade for low prices relative were the biggest losers, down 32% on gets companies that raise their divi-
to earnings and other fundamental average. Next was consumer discre- dends every year. The idea is to have
business measures. Because the shares tionary, down 30%. Tech was off 28%. a rising income stream over time, even
usually offer fairly modest apprecia- Betting on specific industries as a if stock appreciation slows. That could
be particularly useful for retirees who
will need cash to live on. VANGUARD DIV-
Bad News IDEND APPRECIATION (VIG, $111), a Kip ETF
Bear Markets Since 1929 20 member, targets stocks that have
increased dividends every year for at
least 10 years. The fund has a current
The average bear market price decline for Standard & Poor’s 500-stock index is 39.9%. But losses
yield of 2.0%. Another good choice is
vary widely, as does the duration of the downturn.
PROSHARES S&P 500 DIVIDEND ARISTOCRATS
Sept. March May Aug. Dec. Feb. Nov. Jan. Nov. Aug. July Mar. Oct. (NOBL, $68), which invests only in stocks
1929 1937 1946 1956 1961 1966 1968 1973 1980 1987 1990 2000 2007 that have raised payouts annually for
to June to April to June to Oct. to June to Oct. to May to Oct. to Aug. to Dec. to Oct. to Oct. to Mar.
1932 1942 1949 1957 1962 1966 1970 1974 1982 1987 1990 2002 2009 a minimum of 25 consecutive years.
Its current yield is also 2.0%.
A word of caution for dividend fans:
Additional Federal Reserve interest
–21.5% –22.2% –19.9% rate hikes may push dividend stock
–29.6% –28.0% –27.1% prices lower—and their yields higher—
–36.1% –33.5% because the stocks must compete with
rising bond yields. That’s good for
–48.2% –49.1% yield hunters but painful for share
–56.8%
–60.0% prices in the short run.
TWEAKING YOUR BOND MIX
It’s a frustrating time for bond inves-
–86.2% tors. Measured by total returns—
SOURCE: S&P Dow Jones Indices
interest earnings plus or minus any

56 KIPLINGER’S PERSONAL FINANCE 11/2018

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