Best Defensive ETFs to Buy Now for May 2022

One way investors handle these conditions is by getting defensive – sometimes the best offense is a good defense. So, today I want to highlight defensive ETF opportunities. The focus will be on great companies that sell what’s in demand, regardless of economic conditions. Typically, that means bigger firms with solid balance sheets and cash on hand to pay dividends.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets. In fact, we created the Big Money Index (BMI), which measures large-scale investor activity and is a gauge of the market’s past and future (the BMI tends to lead markets). It’s nosedived recently:

That’s due to heavy selling and an absence of buying:

These conditions are making investors play defense. As such, we’ve identified some defensive ETFs we think have good current prospects as well as solid long-term potential: MLPA, XYLD, VDE, SCHD, and HDV. Blended together at equal weight, a portfolio of these ETFs would pay a dividend yield of 5.3%.

Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Let’s get to the five best defensive ETF opportunities for May 2022.

Global X MLP ETF (MLPA) Analysis

This ETF focuses on master limited partnerships or MLPs. It offers the benefits of investing in MLPs (like favorable tax treatment) along with the ease and liquidity of an exchange-traded product. MLPA offers a current 7.3% dividend yield, which is enticing, and is full of solid energy companies.

MLPA holds several powerhouse stocks. One example is Energy Transfer LP (ET), which is up 37% this year, grew sales in a year by 73.1%, and has a profit margin of 8.1%. Here are Big Money signals for ET:

Global X S&P 500 Covered Call ETF (XYLD) Analysis

What makes XYLD special is it uses a “covered call” strategy. A simple way to think of it is earning dividends on dividends. This ETF holds a nice mix of growth names for tomorrow and household names of today, plus it pays a nearly 9.6% dividend yield.

One great stock XYLD holds is Tesla Inc. (TSLA). It’s a long-time Big Money favorite with fantastic fundamentals, including a 10.3% profit margin, 3-year EPS growth of 336.2%, and 3-year sales growth of 37.8%. As the multi-year chart below shows, it’s been a growing giant for a while:

Vanguard Energy Index Fund (VDE) Analysis

The energy sector has been red hot for a while now. But just as geopolitical situations can move markets up, they can also move them down, and that’s happened in energy recently. We can see that in VDE below. Still, there are tailwinds like inflation and global energy needs, so there’s still a bullish outlook. Don’t forget the dividends either – VDE pays a 3.2% current dividend.

This ETF holds the big energy producers we’ve come to know, including Exxon Mobil Corporation (XOM), which is a dividend cash cow that’s been on a tear recently. The company has a one-year sales growth rate of 57.4% with a profit margin of 8.2%. It’s also been a Top 20 Big Money buy for years:

Schwab U.S. Dividend Equity ETF (SCHD) Analysis

If the best offense is a good defense, then SCHD is a stalwart because it’s long on defensive positions, especially great dividend stocks. It pays a current 2.9% dividend yield, saw big buying in early 2022, and could see more as people flock to defensive investments:

A great dividend stock within this ETF is Pfizer Inc. (PFE), a profitable healthcare company (27.6% profit margin) with growing sales (3-year sales growth rate of 23.8%) that’s been a Big Money magnet. The multiyear chart below shows lots of Big Money buying:

iShares Core High Dividend ETF (HDV) Analysis

This is another strong dividend play as this ETF has been trucking along this year, despite headwinds and uncertainty. HDV holds household names with strong balance sheets and attractive dividend payments. It also pays a current 3.2% dividend, which is a likely reason it’s attracting Big Money buys:

A fantastic stock in HDV is Johnson & Johnson (JNJ), the healthcare giant. It’s a steady large-cap stock that has paid dividends for years. The fundamentals look good too as it’s profitable (22.3% profit margin), grew sales recently (1-year sales growth of 13.5%), and has rising earnings (3-year EPS growth of 13.3%). That’s probably why Big Money has been all over it for years:

Here’s a Big Money recap:

• When Big Money buying pours in, stocks tend to go up
• Red selling on great quality can be a great opportunity
• Repeated buying usually means outsized gains

Bottom Line and Explanatory Video

MLPA, XYLD, VDE, SCHD, and HDV are my top defensive ETFs for May 2022. I believe these funds can rise higher in rough environments primarily because they hold great defensive stocks. These ETFs feature solid balance sheets and attractive dividend yields, so they’re high quality and battle tested.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in MLPA, XYLD, VDE, SCHD, HDV, ET, TSLA, XOM, PFE, or JNJ in managed or personal accounts at the time of publication.

Contact:

https://mapsignals.com/contact/