Four ETFs Weathering the Pullback

By Billy Fisher | February 11, 2010 AAA

As the temperamental February weather continues to bring blustery conditions to much of the East Coast, the equity markets have not been faring much better. The SPDR S&P 500 ETF (NYSE:SPY), which is designed to track the performance of the S&P 500, has already retreated 5.0% just one month into the new year. Few sectors of the market have been spared during this pullback, but there have been some ETFs that are remaining above water. Here are four ETFs that are weathering the pullback.

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The Flight to Safety
Of the 879 ETFs tracked by Morningstar, the top 74 performers over the course of the past four weeks have been inverse ETFs. Less than one-fifth of the population of 879 ETFs has even managed to produce positive returns over this time period. In terms of non-inverse ETFs, one of the better performers has been the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT).


TLT has returned 3.5% over the course of the past four weeks. It also carries a dividend yield of 4.0% which may appeal to income investors looking to play it safe during these volatile times. This ETF has benefited recently from a stronger dollar and a shift by investors into the safety of U.S. Treasuries.

The iShares Barclays TIPS Bond Fund (NYSE:TIP) has benefited from these same developments and is up 0.5% during the past four weeks. This fund has also benefited from investor concerns of skyrocketing inflation down the road in the U.S. The extent of this concern has pushed TIP to grow to become the sixth-largest ETF in the world.

Just What the Doctor Ordered
Although it is down 1.7% during the last four weeks, the SPDR S&P Pharmaceuticals ETF (NYSE:XPH) has outperformed the vast majority of non-inverse ETFs over this period of time. It is a balanced fund containing 20+ pharmaceutical companies and is weighted approximately 70% in mid cap and small cap stocks.

The recent loss of the super majority that Democrats had held in the Senate bodes well for XPH although a great deal of uncertainty still looms over the future of the pharmaceutical industry. This ETF still seems as though it would be an attractive investment for those looking for a sector that has traditionally been recession resistant, but still holds the upside potential of a small or mid cap play. (Learn more about recession proof investments, read: Recession-Proof Mutual Funds).

The PowerShares DB U.S. Dollar Index Bullish Fund (NYSE:UUP) declined 6.5% in 2009 as the dollar continued to weaken. So far in 2010, the dollar has held its ground and UUP is up 2%. For investors who believe that the dollar will continue its ascent, UUP may be the way to go. Opponents who think stormy weather lies ahead for the dollar would obviously want to pass on this ETF.

The Bottom Line
The outlook for non-inverse ETFs has been bleak lately as the recent market downturn has impacted all areas of the market. For investors who are looking to avoid exiting the market altogether, these four ETFs will serve as sound alternatives. These funds are fairly conservative and should be able to weather the winter storm.

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