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U.S. stocks started September on a dismal note on economic slowdown concerns following weak data, which shows that manufacturing shrank again in August. This resulted in investors’ flight to defensive sectors like utilities, real estate, healthcare, and consumer staples to beat the woes. 

In fact, ETFs from these sectors roared to new highs. We have highlighted one ETF each from these sectors that touched new highs on Tuesday. These are Utilities Select Sector SPDR (XLU - Free Report), Vanguard Real Estate ETF (VNQ - Free Report), iShares U.S. Healthcare ETF (IYH - Free Report), and Consumer Staples Select Sector SPDR Fund (XLP - Free Report).

What Happened on the Bourses?
 

All the three major U.S. indices recorded their biggest daily percentage declines since early August. Notably, the S&P 500 and the Nasdaq 100 saw their worst starts to September since 2015 and 2002, respectively.

The decline came as the so-called “Magnificent 7,” which have led this year's rally, slumped. NVIDIA dropped nearly 10%, shedding a record $279 billion from its market capitalization, the biggest ever single-day decline in market value for a U.S. company.

Investors started to feel jittery as Wall Street entered one of the market's historically worst months ahead of the Fed meeting. September is the only calendar month to average a negative return over the past 98 years, per Fisher Investments. According to Ryan Detrick, chief market strategist at advisory firm Carson Group, September has been the worst-performing month since 1950.

Why Defensive Sectors?
 

Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil. Real estate also often acts as a safe haven in times of market turbulence and concurrently offers higher returns due to their juicy yields.

Healthcare, which generally outperforms during periods of low growth and high uncertainty, garnered investors’ interest due to its non-cyclical nature. Being defensive in nature, the consumer staples sector also sees steady demand in the event of an economic downturn due to its low level of correlation with the economic cycles. It generally acts as a safe haven amid political and economic turmoil.

Given this, we have highlighted one ETF each from these four sectors. 

Utilities Select Sector SPDR: 52-Week High – $76.73

With AUM of $17.2 billion, Utilities Select Sector SPDR provides exposure to a small basket of 31 securities by tracking the Utilities Select Sector Index. It is heavily concentrated on the top firm at 14.2%, while other firms hold no more than 8.4% share. Electric utilities takes the top spot in terms of sectors at 66.1%, closely followed by multi utilities (26.6%). 

Utilities Select Sector SPDR charges 9 bps in annual fees and sees a heavy volume of around 9 million shares on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Real Estate ETF: 52-Week High – $95.50 

Vanguard Real Estate ETF targets the real estate segment of the broader U.S. market. It follows the MSCI US Investable Market Real Estate 25/50 Index and holds 155 stocks in its basket, with none accounting for more than 13.4% share. VNQ has key holdings in retail REITs, telecom tower REITs and industrial REITs with double-digit exposure each. 

Vanguard Real Estate ETF is the most popular and liquid ETF, with AUM of $37.1 billion and an average daily volume of around 3.6 million shares a day. It charges 13 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Sector ETFs Scaling New Highs on Fed Minutes).

iShares U.S. Healthcare ETF: 52-Week High – $66.59

iShares U.S. Healthcare ETF offers exposure to 106 U.S. healthcare equipment and services, pharmaceuticals and biotechnology companies by tracking the Russell 1000 Health Care RIC 22.5/45 Capped Gross Index. In terms of industrial exposure, pharma takes the top spot at 32.1%, followed by healthcare equipment (18.8%) and biotech (18.2%). 

iShares U.S. Healthcare ETF has amassed $3.5 billion in its asset base and charges 39 bps in annual fees. It trades in a moderate volume of around 185,000 shares a day and has a Zacks ETF Rank #3 with a Medium risk outlook.

Consumer Staples Select Sector SPDR Fund: 52-Week High – $83.37

Consumer Staples Select Sector SPDR Fund offers exposure to companies primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products and personal products. It follows the Consumer Staples Select Sector Index and holds 38 stocks in its basket.

Consumer Staples Select Sector SPDR Fund is the most popular consumer staples ETF with AUM of $17 billion and an average daily volume of 10 million shares. It charges 9 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

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