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Market selloffs can challenge even the most experienced investors, highlighting the inherent volatility of stock trading. Nevertheless, there are strategies to help cushion the impact of these fluctuations.
Exchange-traded funds (ETFs) provide a mechanism for investors to gain access to a diverse array of companies through a single investment. Specifically, ETFs that offer dividends can serve as a means for diversification and a source of passive income, aiding investors during turbulent market periods.
Here’s a closer look at three notable ETFs worthy of consideration: the JPMorgan Equity Premium Income ETF (JEPI), the Vanguard Utilities ETF (VPU), and the Vanguard Energy ETF (VDE).
Consistent Passive Income with a Steady Approach
Lee Samaha on the JPMorgan Equity Premium Income ETF: This ETF appeals to investors seeking steady, low-volatility returns, providing monthly income that remains resilient across various market conditions. While it may sacrifice some gains during bullish market phases, it offers a safeguard during downturns.
Despite experiencing some setbacks in April, the ETF had earlier shown strong total returns, exceeding the performance of the S&P 500 until then. Its recent dip may present a favorable entry point as it trades slightly below its net asset value.
Additionally, with a trailing dividend yield of approximately 7.5%, this ETF represents a robust income-generating vehicle. Its strategy of utilizing derivatives to benefit from market downturns, coupled with a portfolio of U.S. stocks, makes it a compelling choice for investors concerned about potential declines in the market.
Stable Income Through Utility Investments
Scott Levine on the Vanguard Utilities Index Fund ETF: For those looking for a calming influence amid market chaos, the Vanguard Utilities Index Fund ETF offers a steady source of income and reliability. Utility companies are known for their stable revenue streams, making this ETF particularly appealing during economic uncertainty.
With a 30-day SEC yield of 2.9% and a low expense ratio of 0.09%, this ETF is especially attractive currently. Though it encompasses various utility sectors, electric utilities dominate the fund, accounting for about 62% of its holdings. Major players like NextEra Energy, Southern Company, and Duke Energy represent significant portions of the portfolio, together constituting over a quarter of the fund’s weight.
In the past year, the Vanguard Utilities Index Fund ETF has achieved a remarkable total return of over 26.6%, notably outpacing the S&P 500’s return of 5.9% during the same timeframe, a trend that provides encouragement for potential investors.
Opportunity in Energy Sector Volatility
Daniel Foelber on the Vanguard Energy ETF: The energy sector experienced impressive performance early in the year but faced a notable downturn in April, becoming the worst-performing sector. Factors such as economic tariffs affecting demand, coupled with OPEC+ decisions on production, have contributed to this volatility.
This market pullback could offer a lucrative opportunity for long-term investors looking to acquire shares in high-yield oil and gas companies. The Vanguard Energy ETF focuses on a mix of U.S. oil and gas firms across various industry segments, including exploration, production, and refining.
Noteworthy holdings include major players like ExxonMobil and Chevron, which together make up a significant portion of the fund. These companies have a reputation for maintaining and even increasing their dividends through market fluctuations, with ExxonMobil boasting 42 consecutive years of dividend increases and Chevron following closely with 38 years.
While not all companies in the sector maintain such reliable dividend practices, an ETF can help mitigate risks associated with individual stock performances. With a 0.09% expense ratio and a minimal investment threshold, the Vanguard Energy ETF provides a cost-effective way to access the energy market, boasting a price-to-earnings ratio of 13.3 and a yield of 3%, making it appealing to value investors seeking steady income.
Source
www.fool.com