Which ETFs to consider in a bear market: Experts weigh in

As the Fed tightens monetary policy and asset prices come down, investors may wonder if there is anywhere to hide during a bear market.

In continuation of our series, “What to do in a bear market,” Yahoo Finance asked some experts which ETFs, or exchange-traded funds, to consider during these volatile times.

Firstly, what is an ETF?

Think of exchange-traded funds similar to a basket of securities that trade on an exchange, just like a stock does. EFTs may contain stocks within an industry, bonds, crude, metals, currencies, or any other type of investment. Exchange-traded funds have exploded in popularity over the years.

They’re simple to buy and sell.

Are there any ETFs investors should consider during these volatile markets?

Healthcare

“Healthcare Sector ETFs present the best opportunity for investors who want a defensive play to weather the bear market and would like to be set up for one of the best long-term growth plays for this decade—healthcare innovation,” says Jamie Cox, managing partner at Harris Financial Group.

Cybersecurity

If we think about enterprise spending, we’ve heard comments that it’s starting to slow. But we also know that the pace of cyberattacks just continues to accelerate, ransomware in particular. Companies need to continue to protect their crown jewels,” Chris Versace, chief investment officer at Tematica Research recently told Yahoo Finance Live.

“This is a huge pain point for companies, and they’re going to have to spend to address it,” he said. “The preferred way we have is to get a well-rounded exposure using a cybersecurity ETF whether is CIBR (CIBR), or perhaps even HACK (HACK).”

Semiconductor Index

“The SOX (^SOX) index has been decimated and for a legitimate reason: The semiconductor cycle peaked months ago, valuations and expectations got out of whack, and demand for chips has been contracting at an unusually accelerating pace,” says Professor Jeffrey Bierman, Chief Market Technician at TheoTrade.com.

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“With that said, the SOX index which is typically characterized as a growth sector play has been reduced to a VALUE sector play. But make no mistake, many of the components that comprise the SOX (Inetl (INTC), Micron (MU), Qualcomm (QCOM), e.g.) have way overshot their long-term, historical valuations to the downside and as a result, have become bargain basement opportunities and not just bottom-fishing plays,” he added.

Several ETFs track the PHLX Semiconductor index, some of them including SMH (SMH), and SOXQ (SOXQ).

Are there any ETFs to stay away from during a bear market?

Cox of Harris Financial Group said that “most of the damage is done to the sectors folks should avoid in a bear market. Among them are consumer discretionary and technology. Oddly enough, however, is how poorly communication services have performed during this bear market.”

She added: “Once a stalwart during many a bear market given their utility-like characteristics and strong dividend payouts, that is certainly not the case today. Strong competition and high capital outlay for 5G have made the sector one of the worst for 2022.”

SPYDER S&P Homebuilder ETF (XHB)

“Until interest rates top-tick, housing-related and home-building stocks are likely to be held in check,” Bierman of TheoTrade.com said.”

“Mortgage rates are closing in on 6% and consumers are reigning in their thirst for home searches. Granted the valuations on a laundry list of homebuilders like KBH, PHM and DHI appear to be at rock bottom.

“However, the housing market is a cyclical, non-continuous market impacted primarily by the stock market wealth effect which has been temporarily dashed, and affordable mortgage rates which have yet to reach an apex. Don’t jump into buying this sector just because it’s depressed.”

SPYDER Gold Shares ETF (GLD) — “For too long strategists and business news media pundits have espoused that gold is a hedge against rising inflation and/or a falling stock market,” Bierman added.” News flash: That is categorically false or misconstrued. Gold is a prisoner to the U.S. Dollar. In other words, there is an inverse relationship or correlation phenomenon between precious metals and the U.S. Dollar Index (DX-Y). Until the U.S. dollar against foreign currencies not just reverses for a few weeks, but technically breaks below the $1.00 (par level) gravity point, the price of gold will likely generate fits and starts, but not gain traction to the upside.”

Ines Ferre is a reporter for Yahoo Finance covering the US stock market. Follow her on Twitter at @ines_ferre.

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