Market Mysteries: Are Boring Stocks Back?
As investors grow weary of volatility in the Internet and biotechnology sectors after both peaked earlier this year and have fluctuated since in what analysts are calling valuation adjustments, renewed attention is being paid to the relative safety of “boring” stocks — the kind Grandma might have given you as a graduation gift. While this by no means signals an exodus from their flashier counterparts, investments in non-cyclical sectors such as consumer staples and REIT ETFs are rising as shareholders seek to balance their portfolios with stocks that tend to remain steady despite any market changes.
The tech-heavy Nasdaq has borne the brunt of market uncertainty over recent moves by major players. Spooked by Facebook’s (NASDAQ:FB) latest high-profile acquisitions, investors responded, with the company’s shares sliding 20 percent from their high. November’s IPO darling, Twitter (NYSE:TWTR), peaked in less than a month, when its value nearly tripled to $55 billion, or $74 per share, even though the company has yet to turn a profit. Share price currently hovers around $45. King Digital Entertainment (NYSE:KING), the maker of Candy Crush, had the most disastrous IPO so far this year, when shares dropped nearly 16 percent on their first day of trading despite the popularity of the company’s mobile games. Even Amazon’s (NASDAQ:AMZN) Prime-HBO announcement couldn’t perk up the company’s stock, as shares continue to slip, down 19 percent this year.
Biotechnology overvaluations did not boost investor confidence, as iShares NASDAQ Biotechnology ETF (NASDAQ:IBB), seen as the barometer for the sector, doubled in February, then dropped 21 percent earlier this month before bouncing back over 5 percent. The SPDR S&P Biotech ETF (NYSE:XBI) fell more than 15 percent in the last month and continues to fluctuate during earnings call season.
These instabilities have been too much for some investors, who are returning to the relative safety of non-cyclical sectors that are unlikely to see dramatic gains but also tend to return dividends. The most popular “boring” ETFs are in consumer staples, which have outperformed the broader market this year. The Consumer Staples Select Sector SPDR (NYSE:XLP), which follows the S&P Consumer Staples Select Sector Index, has enjoyed a steady rise since dipping in early February and was helped by better-than-expected earnings posted by Coca-Cola (NYSE:KO) and Pepsi (NYSE:PEP) last quarter. The Vanguard Consumer Staples ETF (NYSE:VDC) and iShares Dow Jones US Consumer Goods Sector ETF (NYSE: IYK) have seen similar year-to-date gains.
Another historically stable market investors are reexamining is REIT ETFs. While its indexes have seen more fluctuation than consumer staples, Vanguard’s REIT Index ETF (NYSE:VNQ) has grown 11 percent over the past year, and the second largest, iShares Dow Jones U.S. Real Estate ETF (NYSE:IYR), has had a year-to-date return of 8.5 percent.
Despite geopolitical conflicts, utilities remain an unsexy but steady investment option. The Guggenheim S&P Equal Weight Utilities (NYSE:RYU) recently surpassed its previous April 2013 peak, and the sector overall has performed the best this year, rising over 11 percent even as the S&P 500 Index has dropped. The most popular utilities ETF, Utilities Select Sector SPDR (NYSE: XLU), is 13 percent ahead this year to date, and Vanguard Utilities ETF (NYSE:VPU) is up over 12 percent from the same time last year.
As reflected in both Apple (NASDAQ:AAPL) and Facebook’s first-quarter earnings reports, posted this week, revenues in many headline-grabbing companies are rising, and investors are reacting favorably — for now. While there is no immunity to market instability, staple sectors tend to weather market fluctuations, and some shareholders are realizing that sometimes, boring can be better.