The stock market is caught in a vicious circle of volatility and uncertainty, leading to risk-off investor sentiment once again after a significant rally in the first nine months of 2018. The flattening yield curve, U.S.-China trade tensions and global growth worries have resulted in recent market gyrations.
In particular, the flattening yield curve (a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts) has sparked fears of recession. Notably, the spread between the 10-year yield over its two-year counterpart shrank to the smallest since the start of the financial crisis in January 2008. As the relationship between the 2-year and 10-year yields is often used as a barometer of investor expectations for economic growth, the inversion of the yield curve signals a slowdown in the world's largest economy and thus, is a cause of concern (read: Markets in Red for the Year: Follow Goldman With 3 ETF Tactics). Additionally, doubts over the U.S.-China trade war truce agreement have been growing with contradictory statements from the administration. The arrest of a chief financial officer of China's Huawei Technologies has also threatened to cause another flare up in tensions between Washington and Beijing. These issues were compounded by the persistent slowdown in China, troubles in the emerging market and deteriorating economic growth in developed markets. Moreover, even the holiday optimism failed to drive the stocks higher. VIDEO
As a result, the S&P 500 and Dow Jones were down more than 4% in a month. High growth and high beta stocks saw dire trading with investors fleeing riskier assets classes in search of safe havens. Tech and biotech stocks bore the brunt and this had a ripple effect on the other sectors too.
Amid such backdrop, investors should stash their cash in some conventionally secure and recession proof corners of the broad market. Below, we have highlighted few ETFs from these sectors: Utilities Select Sector SPDR ( XLU - Free Report) Being the 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 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 $8.2 billion, it provides exposure to a small basket of 29 securities by tracking the Utilities Select Sector Index. The product charges 13 basis points (bps) in annual fees and sees a heavy volume of around 17.5 million shares on average. XLU has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Utilities ETF Hits New 52-Week High). iShares U.S. Healthcare Providers ETF ( IHF - Free Report) Healthcare, which generally outperforms during periods of low growth and high uncertainty, garnered investors’ interest due its non-cyclical nature. The demand for healthcare services remains intact even in the deteriorating economic fundamentals. IHF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 45 securities in its basket and has amassed $1.2 billion in its asset base. Volume is good at about 109,000 shares per day on average. The product charges 43 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Consumer Staples Select Sector SPDR Fund ( XLP - Free Report) The consumer staples sector is also 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. This is the most-popular consumer staples ETF with AUM of $9.9 billion and follows the Consumer Staples Select Sector Index. It holds about 33 securities in its basket and charges 13 bps in fees per year from investors. The fund trades in heavy volume of nearly 15.8 million shares a day and has a Zacks ETF Rank #3 with a Medium risk outlook. Vanguard Dividend Appreciation ETF ( VIG - Free Report) Dividend paying securities are the major source of consistent income for investors to create wealth 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 (read: Are We Headed Toward Bear Market? ETFs to Save Your Portfolio). VIG is the largest and most popular ETF in the dividend space with AUM of $30.5 billion and average daily volume of about 763,000 shares. The fund follows the Nasdaq US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 182 securities in the basket and charges 8 bps in annual fees. The product has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>