ETFs To Buy in Recession: The March 2020 market crash was shocking. In a matter of weeks, a strong, thriving economy plunged from record highs to record lows as a result of the COVID-19 pandemic. Businesses closed, entire states issued stay-at-home orders, and travel was all but outlawed. It was the start of a recession that some say is the worst global economic crisis since the Great Depression.
The good news is that there are signs of recovery in the United States. Hard-hit retailers and restaurants are slowly starting to return to life, and consumer confidence is improving bit by bit. New unemployment claims are going down more each week, and some of those who found themselves suddenly out of work have been able to return.
Of course, some industries are in a better position than others. The outlook remains grim for travel and hospitality, along with many types of entertainment. Most people are still sticking close to home and avoiding crowds. These industries are major employers, so the related job loss still leaves the United States down by 11.5 million jobs in September 2020 as compared to February 2020.
As a whole, investors were not prepared for the sudden descent into recession, and many are still reeling from substantial losses. Fortunately, there are proven strategies for keeping portfolios stable through difficult and volatile economic periods, and there are investments specifically designed to deliver value during economic downturns.
SPDR Gold Shares (GLD) Are A Safe Haven
Gold has long been considered a safe haven asset – one that moves inversely to the market. When confidence in the economy diminishes, gold prices often go up, making it a smart hedge for any portfolio.
The problem is, of course, that storing a collection of gold bars, coins, or bullion isn’t practical. Fortunately, there are a variety of ways to invest in gold aside from taking possession of the precious metal.
The SPDR Gold Shares ETF (GLD) is managed and marketed by State Street Global Advisors. It has the distinction of being the first US-listed gold ETF, and it is one of the most successful.
This particular ETF is almost entirely invested in gold bullion. State Street Global Advisors handles the logistics of owning the physical asset in exchange for a small fee. The gross expense ratio is currently at 0.40 percent.
Of course there are other ways to play gold. For example, Warren Buffett most recently decided to load up on shares of Barrick Gold, which is a miner and has the unforgettable ticker symbol: GOLD.
Vanguard Utilities Index Fund (VPU) = Steady Cash
There are some goods and services that are essentially recession-proof. Consumers will buy regardless of how tight their budgets get. Utilities are at the top of that list, making utility-based investments a smart choice.
ETFs simplify the process of investing in utilities, because there is no need to research multiple companies and choose among them. Instead, utilities-focused ETFs own shares in a number of companies, selected based on research and projections completed by fund managers.
The Vanguard Utilities Index Fund is operated by the highly reputable Vanguard Group. Its goal is to mirror the performance of a utilities-specific benchmark index, so it is passively managed.
That means a low expense ratio of just 0.10 percent. The fund buys stock in companies across the utilities industry, including independent power producers and those that distribute gas, water, and/or electricity.
The odds are that even in bad economic times, consumers will continue to pay utility bills even If they cut other expenses.
Is iShares US Healthcare ETF (IYH) Recession Proof?
Utilities aren’t the only must-have when it comes to consumer purchases. Companies in the healthcare industry also tend to be recession-proof. Granted, this doesn’t apply to all health and medical companies, and the pandemic has negatively impacted certain types of providers.
However, ETF managers have the experience and expertise necessary to build a portfolio around the sort of healthcare that thrives in any market.
The iShares US Healthcare ETF is one such fund – it focuses exclusively on US-based healthcare companies. Examples of the sorts of companies in its portfolio include pharmaceuticals, biotechnology, and healthcare equipment and services.
The stated goal of iShares US Healthcare ETF is to track the investment results of an index composed of US equities in the healthcare sector. To date, it has been quite successful. The expense ratio comes in at 0.43 percent, which is reasonable compared to peers in this space.
Surviving a Recession: The Bottom Line
To keep your portfolio buffered from the stormy economic winds of change, investments in industries where demand doesn’t soften no matter how gloomy the horizon are the place to be. Healthcare and utilities check those boxes. But so too does gold because it is often uncorrelated to general market moves, meaning when other asset classes suffer, gold prices frequently remain resilient.
The bottom line is that a recession is bound to be painful, and it can take a long time for your investment portfolio to fully recover.
Fortunately, there are moves you can make and strategies you can use to speed that recovery along. Investments in gold are helpful, as gold moves at an inverse to the market, and buying stock in companies in recession-proof industries can also give you a boost.
Many investors choose ETFs over individual shares, because it reduces the amount of time spent on research. Fund managers do the work for you, selecting the right investments at the right time to maximize overall performance.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.