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The International Monetary Fund believes that the U.S. economy will likely slow this year, and a soft landing is expected. A recession can possibly be dodged by a slight margin. However, many analysts expect a recession in the United States this year as higher rates are likely to impede growth. A likely recession could send stocks plunging another 30%, according to one former Merrill Lynch economist David Rosenberg, as quoted on Fortune.
Against this backdrop, below, we highlight a few ETF areas that could be played as these are believed to be recession-proof.
Amid any recession, healthy companies that have produced consistent earnings strength appear to be great bets.
Investors should note that the flagship ETF ZECP from Zacks Investment Management has been built on the core methodology the firm is known for: earnings estimate revision research. Through a proprietary process, a diversified blend of the largest and most liquid companies is selected for ZECP according to their earnings history through full market cycles.
The quantitative screens are combined with the qualitative finding of the portfolio manager based on an analysis of financial statement filing consistency, profitability, earnings stability in recessionary periods, valuation, and improving fundamentals. The actively-managed fund charges 55 bps in fees.
“Vice” stocks such as alcohol, gaming, and cannabis perform better even in recession as these sectors have low correlation to the overall market. This is because people drink, smoke and gamble in both good times and bad, making vice or sin stocks fairly recession-proof. Historical evidence on the performance supports sin stock’s higher alpha, per an article on Business Insider.
Vice ETF puts 35.7% weight on gambling, followed by 28.6% weight on alcohol and 16.7% on tobacco. About 80% of stocks hail from North America. The fund charges 99 bps in fees.
According to some estimates, the marijuana market will witness a compound annual growth rate of 25.4% through 2030, per a seeking alpha article. While marijuana companies’ financials are not great, cannabis stocks should be in decent shape amid any recession. The Roundhill Cannabis ETF is designed to offer investors exposure to the cannabis sector. The fund charges 39 bps in fees.
Utilities – Invesco Water Resources ETF (PHO - Free Report)
Water stocks should be in good shape as demand for utilities remains unchanged in any economic slowdown. The underlying NASDAQ OMX U.S. Water Index tracks the performance of U.S. exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries. The fund charges 59 bps in fees.
Healthcare – Health Care Select Sector SPDR ETF (XLV - Free Report)
The healthcare sector is non-cyclical nature, which provides a defensive tilt to the portfolio amid market turmoil. Further, the long-term fundamentals remain strong, given encouraging industry trends.
The underlying Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology. The fund charges 10 bps.
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5 Recession-Proof ETF Areas to Play Now
The International Monetary Fund believes that the U.S. economy will likely slow this year, and a soft landing is expected. A recession can possibly be dodged by a slight margin. However, many analysts expect a recession in the United States this year as higher rates are likely to impede growth. A likely recession could send stocks plunging another 30%, according to one former Merrill Lynch economist David Rosenberg, as quoted on Fortune.
Against this backdrop, below, we highlight a few ETF areas that could be played as these are believed to be recession-proof.
ETFs in Focus
Earnings Strength – Zacks Earnings Consistent Portfolio ETF (ZECP - Free Report)
Amid any recession, healthy companies that have produced consistent earnings strength appear to be great bets.
Investors should note that the flagship ETF ZECP from Zacks Investment Management has been built on the core methodology the firm is known for: earnings estimate revision research. Through a proprietary process, a diversified blend of the largest and most liquid companies is selected for ZECP according to their earnings history through full market cycles.
The quantitative screens are combined with the qualitative finding of the portfolio manager based on an analysis of financial statement filing consistency, profitability, earnings stability in recessionary periods, valuation, and improving fundamentals. The actively-managed fund charges 55 bps in fees.
Sin Sectors – AdvisorShares Vice ETF (VICE - Free Report)
“Vice” stocks such as alcohol, gaming, and cannabis perform better even in recession as these sectors have low correlation to the overall market. This is because people drink, smoke and gamble in both good times and bad, making vice or sin stocks fairly recession-proof. Historical evidence on the performance supports sin stock’s higher alpha, per an article on Business Insider.
Vice ETF puts 35.7% weight on gambling, followed by 28.6% weight on alcohol and 16.7% on tobacco. About 80% of stocks hail from North America. The fund charges 99 bps in fees.
Marijuana – Roundhill Cannabis ETF (WEED - Free Report)
According to some estimates, the marijuana market will witness a compound annual growth rate of 25.4% through 2030, per a seeking alpha article. While marijuana companies’ financials are not great, cannabis stocks should be in decent shape amid any recession. The Roundhill Cannabis ETF is designed to offer investors exposure to the cannabis sector. The fund charges 39 bps in fees.
Utilities – Invesco Water Resources ETF (PHO - Free Report)
Water stocks should be in good shape as demand for utilities remains unchanged in any economic slowdown. The underlying NASDAQ OMX U.S. Water Index tracks the performance of U.S. exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries. The fund charges 59 bps in fees.
Healthcare – Health Care Select Sector SPDR ETF (XLV - Free Report)
The healthcare sector is non-cyclical nature, which provides a defensive tilt to the portfolio amid market turmoil. Further, the long-term fundamentals remain strong, given encouraging industry trends.
The underlying Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology. The fund charges 10 bps.