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As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession and slashed its global growth forecast. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hurting growth. Additionally, energy and food bills have been rising around the world.
Against such a backdrop, investors should stash their cash in some conventionally secure and recession-proof corners of the broad market. Utilities Select Sector SPDR (XLU - Free Report) , iShares U.S. Healthcare Providers ETF (IHF - Free Report) , Invesco Dynamic Food & Beverage ETF (PBJ - Free Report) , Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) look like excellent choices amid recession warnings.
The World Bank now expects the global economy to expand 2.9% for this year, down from 5.7% growth in 2021 and lower than the 401% expectation projected in January.
The agency cautioned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s. This is because the Russian invasion of Ukraine has magnified the slowdown in the global economy and intensified the damage from the COVID-19 pandemic as many countries now face recession. In particular, less developed countries in Europe and east Asia will face a "major recession” and higher risk of strong inflation and low growth (so-called "stagflation") (read: 5 Sector ETFs to Win from an 8%+ U.S. Inflation).
Growth in advanced economies is expected to decelerate sharply to 2.6% in 2022 from 5.1% in 2021 before moderating to 2.2% in 2023. Meanwhile, expansion in emerging markets and developing economies is projected to fall to 3.4% in 2022 from 6.6% in 2021, well below the annual average of 4.8% from 2011 to 2019. Notably, growth in the United States is likely to hit 2.5% in 2022, down from 5.7% in 2021, while the eurozone is expected to see growth of 2.5% after 5.4% last year. China’s economy will likely expand 4.3% after growing 8.1% in 2021.
Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus, considered a defensive investment or a safe haven amid economic or political turmoil. While there are several options in the space, the ultra-popular XLU seems a good bet. With AUM of $16.6 billion, Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. It follows the Utilities Select Sector Index, holding 29 stocks in its basket. Electric utilities takes the top spot in terms of sectors at 63.5%, closely followed by multi utilities (30.9%).
Utilities Select Sector SPDR charges 10 bps in annual fees and sees a heavy volume of around 19.3 million shares, on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares U.S. Healthcare Providers ETF (IHF - Free Report)
Healthcare, which generally outperforms during periods of low growth and high uncertainty, will see huge investor interest due its non-cyclical nature. The demand for healthcare services remains intact even in the deteriorating economic fundamentals. iShares U.S. Healthcare Providers ETF provides exposure to companies that provide health insurance, diagnostics and specialized treatment. It follows the Dow Jones U.S. Select Healthcare Providers Index.
iShares U.S. Healthcare Providers ETF holds 71 securities in its basket and has amassed $1.5 billion in its asset base. Volume is good at about 76,000 shares per day, on average. The product charges 42 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
The consumer staples sector is viewed as defensive as it includes a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles. Invesco Dynamic Food & Beverage ETF offers exposure to 31 stocks engaged in the manufacture, sale, or distribution of food and beverage products, agricultural products and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index (read: Tap Rising Grocery Prices With These ETFs).
With AUM of $294.9 million, Invesco Dynamic Food & Beverage ETF charges 63 bps in annual fees from investors and sees a moderate average daily volume of 213,000 shares. PBJ has a Zacks ETF Rank #3 with a Medium risk outlook.
Vanguard Dividend Appreciation ETF (VIG)
Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Dividend-focused products offer safety in the form of payouts while at the same time providing stability as mature companies are less volatile to large swings in stock prices. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $63.7 billion and an average daily volume of 1.5 million shares.
Vanguard Dividend Appreciation ETF follows the S&P U.S. Dividend Growers Index, which is composed of companies that have a record of increasing dividends over time. It holds 289 securities in the basket and charges 6 bps in annual fees. The product has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Safe Investing Zones &Their ETFs to Escape Market Rout).
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track record of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index.
iShares MSCI USA Quality Factor ETF holds 125 securities in its basket and trade in an average daily volume of 1.6 million shares. The ETF has AUM of $21.2 billion and charges 15 bps in annual fees.
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5 Recession-Proof ETFs for Your Portfolio
As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession and slashed its global growth forecast. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hurting growth. Additionally, energy and food bills have been rising around the world.
Against such a backdrop, investors should stash their cash in some conventionally secure and recession-proof corners of the broad market. Utilities Select Sector SPDR (XLU - Free Report) , iShares U.S. Healthcare Providers ETF (IHF - Free Report) , Invesco Dynamic Food & Beverage ETF (PBJ - Free Report) , Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) look like excellent choices amid recession warnings.
The World Bank now expects the global economy to expand 2.9% for this year, down from 5.7% growth in 2021 and lower than the 401% expectation projected in January.
The agency cautioned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s. This is because the Russian invasion of Ukraine has magnified the slowdown in the global economy and intensified the damage from the COVID-19 pandemic as many countries now face recession. In particular, less developed countries in Europe and east Asia will face a "major recession” and higher risk of strong inflation and low growth (so-called "stagflation") (read: 5 Sector ETFs to Win from an 8%+ U.S. Inflation).
Growth in advanced economies is expected to decelerate sharply to 2.6% in 2022 from 5.1% in 2021 before moderating to 2.2% in 2023. Meanwhile, expansion in emerging markets and developing economies is projected to fall to 3.4% in 2022 from 6.6% in 2021, well below the annual average of 4.8% from 2011 to 2019. Notably, growth in the United States is likely to hit 2.5% in 2022, down from 5.7% in 2021, while the eurozone is expected to see growth of 2.5% after 5.4% last year. China’s economy will likely expand 4.3% after growing 8.1% in 2021.
We have profiled the above-mentioned ETFs below:
Utilities Select Sector SPDR (XLU - Free Report)
Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus, considered a defensive investment or a safe haven amid economic or political turmoil. While there are several options in the space, the ultra-popular XLU seems a good bet. With AUM of $16.6 billion, Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers, and gas utility industries. It follows the Utilities Select Sector Index, holding 29 stocks in its basket. Electric utilities takes the top spot in terms of sectors at 63.5%, closely followed by multi utilities (30.9%).
Utilities Select Sector SPDR charges 10 bps in annual fees and sees a heavy volume of around 19.3 million shares, on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares U.S. Healthcare Providers ETF (IHF - Free Report)
Healthcare, which generally outperforms during periods of low growth and high uncertainty, will see huge investor interest due its non-cyclical nature. The demand for healthcare services remains intact even in the deteriorating economic fundamentals. iShares U.S. Healthcare Providers ETF provides exposure to companies that provide health insurance, diagnostics and specialized treatment. It follows the Dow Jones U.S. Select Healthcare Providers Index.
iShares U.S. Healthcare Providers ETF holds 71 securities in its basket and has amassed $1.5 billion in its asset base. Volume is good at about 76,000 shares per day, on average. The product charges 42 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)
The consumer staples sector is viewed as defensive as it includes a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles. Invesco Dynamic Food & Beverage ETF offers exposure to 31 stocks engaged in the manufacture, sale, or distribution of food and beverage products, agricultural products and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index (read: Tap Rising Grocery Prices With These ETFs).
With AUM of $294.9 million, Invesco Dynamic Food & Beverage ETF charges 63 bps in annual fees from investors and sees a moderate average daily volume of 213,000 shares. PBJ has a Zacks ETF Rank #3 with a Medium risk outlook.
Vanguard Dividend Appreciation ETF (VIG)
Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Dividend-focused products offer safety in the form of payouts while at the same time providing stability as mature companies are less volatile to large swings in stock prices. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with AUM of $63.7 billion and an average daily volume of 1.5 million shares.
Vanguard Dividend Appreciation ETF follows the S&P U.S. Dividend Growers Index, which is composed of companies that have a record of increasing dividends over time. It holds 289 securities in the basket and charges 6 bps in annual fees. The product has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Safe Investing Zones &Their ETFs to Escape Market Rout).
iShares MSCI USA Quality Factor ETF (QUAL - Free Report)
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track record of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index.
iShares MSCI USA Quality Factor ETF holds 125 securities in its basket and trade in an average daily volume of 1.6 million shares. The ETF has AUM of $21.2 billion and charges 15 bps in annual fees.