Defensive Sectors At The Top

Defensive sectors are on the rise and already control the top of the rankings. Real Estate, one of the new-era defensive sectors, has joined Utilities at the pinnacle, and the traditional defensive sector of Consumer Staples sits in third. None of the factor ETFs were able to increase their momentum scores this past week, and the top of the global rankings remains a tight race.

Sectors: Last week, the primary discussion was the rise of Real Estate, as it climbed four spots higher and into the upper echelon. Today, Real Estate sits two notches above last week’s position, and it is now in a tie with Utilities for first-place honors. Traditionally, the “defensive sectors” consisted of Utilities, Consumer Staples, and Health Care. The reasoning behind this was that these were the sectors where consumers had to make expenditures even when the economy was bad. Their defensive nature typically resulted in them declining less than other segments during bear markets. However, what investors classify as defensive can change over time. The Telecom sector is often lumped in with this group because it has many of the characteristics of Utilities along with an above-average yield. Real Estate can be viewed as defensive since it can mitigate the effects of inflation in addition to its high dividend yield. Given these descriptions, it is clear that the Sector Benchmark ETFs are in a defensive posture, with Consumer Staples sitting right below the leaders. Additionally, Telecom climbed three places higher. Health Care, sitting in seventh, is the odd man out, which is likely due to its high degree of political risk at this time. Technology, Consumer Discretionary, and Materials fell in the rankings to accommodate the rise of the defensive sectors. Financials and Energy are still the only two sectors posting negative momentum scores, and this week they have fallen deeper into the red.

Factors: Unlike the show of strength among the defensive sectors, none of the Factor Benchmark ETFs were able to post a momentum increase this week. The five highest-ranked factors remain identical to a week ago, with Momentum and Low Volatility sitting in the #1 and #2 spots, respectively. Yield and Fundamental were both able to climb two positions, but they remain in the lower half of the rankings. High Beta was the only factor to fall in relative strength, and it dropped four places lower. Additionally, High Beta and Value slipped into negative momentum territory.