The 3 Best ETFs for Conservative Investors

The U.S. economy is currently battling with the double whammy of red-hot inflation and consecutive rate hikes. While investors are awaiting the July job report, economists expect 258,000 jobs were added last month, down from 372,000 in June. Moreover, Wells Fargo Investment Institute expects unemployment to reach 4.3% by the end of 2022.

According to veteran economist Mohamed El-Erian, the risk of a recession “is getting higher and higher.” However, he added that productive fiscal intervention and increased labor force participation could prevent a major setback for the U.S. economy.

Given the heightened volatility, as is evident from the CBOE Volatility Index’s 25.8% year-to-date gains, conservative and risk-averse investors could consider buying quality ETFs Consumer Staples Select Sector SPDR Fund (XLP), Invesco Preferred ETF (PGX), and Vanguard Utilities Index Fund (VPU) to protect their portfolios.

Consumer Staples Select Sector SPDR Fund (XLP)

XLP offers exposure to the consumer staples sector. It is a lucrative option for investors during a downturn. The ETF offers impressive liquidity, cost efficiency, and depth of exposure, making it one of the best ETF options in the consumer staples sector.

With $15.64 billion in assets under management (AUM), XLP’s top holdings include The Procter & Gamble Company (PG) with a 14.73% weighting in the fund, followed by The Coca-Cola Company (KO) at 10.74%, and PepsiCo, Inc. (PEP) at 10.49%. It currently has 34 holdings in total.

Over the past year, the ETF’s net inflows were $2 billion. In addition, its 0.10% expense ratio compares favorably to the 0.37% category average.

XLP pays a $1.80 annual dividend yielding 2.39% at the prevailing share price. Its four-year average dividend yield stands at 2.58%. Its dividends have increased at a 4.1% CAGR over the past three years and 4.6% over the past five years. Over the past year, XLP has gained 6% to close the last trading session at $74.81.

It is no surprise that XLP has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, it has an A grade for Trade and Peer and a B for Buy & Hold.

XLP is ranked #7 out of 48 ETFs in the B-rated Consumer-Focused ETFs group. Click here to see all the XLP ratings.

Invesco Preferred ETF (PGX)

PGX offers investors exposure to preferred stock. Preferred stockholders have a ‘preferred’ position on assets compared to other common shareholders but are devoid of voting rights. They are ideal for those seeking to foster yields in a portfolio or for those looking for less risky options of equity exposure.

Invesco Shrt-Trm Inv Gov&Agcy Instl has a 2.77% weighting in the fund as its top holding, followed by Citigroup Inc Deposit Shs Repr 1/1000th 6 7/8 % Non-Cum Perp Pfd Shs Series at 1.61%, and Wells Fargo & Co 4.75% PRF PERPETUAL USD 25 Series Z Class A at 1.40%. PGX has $5.87 billion in AUM. It has 294 holdings in total.

Its net inflows came in at $16.76 million over the past month. Its 0.51% expense ratio is lower than the 0.54% category average.

PGX pays a $0.63 dividend annually, yielding 5.20% at the current price. Its four-year average dividend yield stood at 5.36%. The fund has gained 7.6% over the past month to close the last trading session at $13.41.

PGX’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which translates to a Buy in our proprietary rating system.

It has an A grade for Trade and a B for Buy & Hold. PGX is ranked #8 out of 22 ETFs in the B-rated Convertible Bond/Preferred Stock ETFs group. To see PGX’s rating for Peer grade, click here.

Vanguard Utilities Index Fund (VPU)

VPU offers exposure to the domestic utility sector, which has historically exhibited low volatility with frequent attractive distribution yields. It is ideal for investors looking to establish a shorter-term tactical tilt rather than long-term, buy and hold investors.

The fund has $5.89 billion in AUM. Its top holdings include NextEra Energy, Inc. (NEE) with a 13.37% weighting, Duke Energy Corporation (DUK) with 7.25%, and The Southern Company (SO) with 6.65%. In addition, it has 67 holdings in total.

Its net inflows came in at $407.71 million over the past year. Its 0.10% expense ratio compares favorably to the 0.42% category average.

VPU pays a $4.35 annual dividend, which yields 2.69% at the prevailing share price. Its average four-year dividend yield stands at 3.00%. In addition, its dividends have increased at a 3.9% CAGR over the past three years and 3.5% over the past five years. Over the past year, VPU has gained 11% to close the last trading session at $162.02.

VPU’s POWR Ratings reflect solid prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Trade, Buy & Hold, and Peer. 

VPU is ranked #2 out of 13 ETFs in the A-rated Utility ETFs group. Click here to see all of VPU’s ratings.

XLP shares fell $0.29 (-0.39%) in premarket trading Friday. Year-to-date, XLP has declined -1.82%, versus a -12.86% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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