Markets Up but Defensive ETFs Are Still a Wise Choice

September has been a good month for the S&P 500 index, with the broad market index gaining about 1.92% month to date. With the Fed set to cut interest rates in its September meeting, the index could see additional upside in the weeks ahead.However, falling consumer confidence, increasing core inflation levels and persistent economic tensions raise the odds of a downside, making defensive bets a smart play. Geopolitical tensions in the Middle East and Ukraine-Russia, along with a slowdown in hiring, further support the case for increasing exposure to defensive funds.Weak Consumer Sentiment Signals CautionAccording to preliminary Surveys of Consumers by the University of Michigan, consumer sentiment declined 4.8% to 55.4 in September from 58.2 in August and was 21% lower compared to the same period last year.The University of Michigan’s Index of Consumer Expectations fell 7.3% in September from the previous month and 30.4% from a year ago. Additionally, long-term inflation expectations rose for the second consecutive month, reaching 3.9% in September, with year-ahead inflation expectations remaining unchanged from last month.U.S. Equity Funds Experience Major OutflowAccording to LSEG Lipper data, as quoted on Reuters, in the week ending Sept. 10, U.S. equity funds saw $10.44 billion in net outflows, marking the largest weekly outflow in five weeks, as investors looked to book profits amid concerns over high valuations and geopolitical tensions.Investors also offloaded large-cap and mid-cap equity funds, with net outflows of $18.22 billion and $912 million, respectively.Tariff Spats and Politics Add to Market StrainThe Fed's credibility with the public could be weakened by Trump's political pressure. Concerns about the Fed’s independence and the legal uncertainty surrounding the Trump administration’s tariffs contribute to the increasingly volatile macroeconomic environment.Economic uncertainty and trade tensions fueled by tariffs introduced by the Trump administration are far from over. A U.S. Treasury spokesperson, as quoted on Reuters, urged G7 and EU allies to impose “meaningful tariffs” on China and India-made goods to curb their purchases of Russian oil, raising the risk of heightened trade tensions and economic uncertainty.ETFs to ConsiderPreserving capital and cushioning volatility are key for investors looking to navigate a potentially tumultuous period. Investors should adopt a defensive approach as it's better to be cautious than unprepared.With ETFs offering diversification and tax efficiency, investors can use them to increase exposure to defensive funds. Investing in these sectors provides dual benefits, protecting portfolios during market downturns and offering gains when the market trends upward.Below, we highlight a few areas in which investors can increase their exposure.Consumer Staples ETFsIncreasing exposure to consumer staples funds can bring balance and stability to investors’ portfolios. Investors can put more money in consumer staples funds to safeguard themselves from potential market downturns.The S&P 500 Consumer Staples Index has gained 4.13% year to date. Investors can consider Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC and iShares U.S. Consumer Staples ETF IYK.Value ETFsVanguard Value ETF VTV, iShares Russell 1000 Value ETF IWD and iShares S&P 500 Value ETF IVE, sporting a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), can be appealing options. Characterized by solid fundamentals, such as earnings, dividends, book value and cash flow, these stocks trade below their intrinsic value, representing undervaluation.Quality ETFsInvestors can look at funds like iShares MSCI USA Quality Factor ETF QUAL, Invesco S&P 500 Quality ETF SPHQ and JPMorgan U.S. Quality Factor ETF JQUA. Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.Boost Your Portfolio with Our Top ETF InsightsZacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week.Don’t miss out on this valuable resource. It’s free!Get it now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports Vanguard Value ETF (VTV): ETF Research Reports iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports Vanguard Consumer Staples ETF (VDC): ETF Research Reports iShares U.S. Consumer Staples ETF (IYK): ETF Research Reports iShares Russell 1000 Value ETF (IWD): ETF Research Reports iShares S&P 500 Value ETF (IVE): ETF Research Reports JPMorgan U.S. Quality Factor ETF (JQUA): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks