Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Recession Investing With Sector ETFs

Stock-Markets / Investing 2009 Jul 25, 2009 - 09:01 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleRon Rowland writes: Right now the U.S. is in a deep recession. None of us know for sure when it will end, and the short-term indicators are inconclusive. Yet there is one thing I’ve learned from years of investing: The stock market is not just a big monolith. It’s a complex machine with lots of moving parts — and they don’t all move together.


Of course, figuring out which part of the market will move in which direction at any given time isn’t so easy. However, three market sectors tend to do better in a weak economy. You’ll sometimes hear them called the “defensive” sectors.

Today I’ll tell you what they are and name some ways you can play them with ETFs. As you’ll see, I like “global” sector funds that divide up the world based on economic sectors instead of countries or regions. I think this global approach usually gives you the best exposure to any given sector.

Defensive Sector #1: Consumer Staples

A consumer staple is something that people buy because they don’t have much choice. Examples include:

  • Toilet paper
  • Bread and milk
  • Diapers
  • Coffee
  • Cigarettes

Everyone has to eat, but they don’t have to eat in fancy restaurants. And it’s a lot cheaper to stock up on groceries and do your own cooking at home.

Likewise, when I say “coffee,” I mean the kind that you buy at the grocery store in a can — not the gourmet-brewed coffee from places like Starbucks.

Wal-Mart is the place to shop in a recession.
Wal-Mart is the place to shop in a recession.

My favorite ETF in this sector is the iShares S&P Global Consumer Staples (KXI), which owns companies like Proctor & Gamble, Nestle, and Wal-Mart — solid basic-goods stocks. I also like the fact that KXI has more than 45 percent of its assets in non-U.S. companies.

If you want to stick to large-cap domestic stocks, the Consumer Staples Select Sector SPDR (XLP) is a very popular choice. And for an interesting sub-sector fund, be sure to check out the Market Vectors Agribusiness (MOO), which buys stocks devoted to food production and distribution.

Defensive Sector #2: Utilities

Electric utilities have a captive market.
Electric utilities have a captive market.

The utilities sector is defensive because its customers have limited control over how much they spend. Yes, you can adjust the thermostat and turn off a few lights, but your electric bill is still likely to be a lot of money. You can’t eliminate it completely unless you live in a primitive campground.

Meanwhile, the companies that provide electricity, water, and gas have a legal monopoly in most places. Even better (for them) … when their costs go up they’re often allowed to pass the bill on to you through “fuel surcharges” and the like.

Utilities stocks are often thought of as “income-producing” securities, and in many cases they do pay nice dividends. But they can grow very nicely, too.

A good way to zero in on this sector is with the iShares S&P Global Utilities (JXI), which has 38 percent of its assets in U.S. companies, 12 percent in Germany, 10 percent in France, and 9 percent in Japan. JXI is currently yielding a very nice 6 percent.

And if you want a U.S.-focused utility ETF, you could invest in the Utilities Select Sector SPDR (XLU).

Defensive Sector #3: Health Care

It’s hard to put a price tag on your health. You may have to make some tough choices, but people will cut back on a lot of other things before they stop spending on their family’s medical needs.

The result: Hospitals, drug companies, and related businesses have a layer of insulation that protects them from the impact of a stagnant economy. Leaders like Johnson & Johnson, Novartis, and Pfizer are good examples.

The iShares S&P Global Health Care (IXJ) is my favorite way to get exposure to the worldwide health care sector. IXJ has about 63 percent of its portfolio in the U.S., 13 percent in Switzerland, and 10 percent in the United Kingdom.

Everyone needs medicine when they're sick.
Everyone needs medicine when they’re sick.

If you’d like to be more aggressive, the iShares Nasdaq Biotechnology (IBB) is a very liquid way to trade the cutting-edge biotech subsector. This is where a lot of the health care growth has been concentrated in recent years.

Of course, the fact that these sectors tended to do well in past recessions is no guarantee they’ll do likewise in the future. They can and will have losing periods, even in favorable economic conditions.

It’s also important to remember that sometimes “outperformance” just means “losing less than everything else.” For instance, if the broad market drops 20 percent and health care only falls 5 percent, you did 15 percent better than average — but you still lost money.

Finally, the defensive characteristics of these sectors are a two-edged sword. Just as they tend to be the strongest sectors during a recession, they also tend to be among the weakest sectors during an economic expansion.

Remember, whatever the economy does, you’ll never run out of ways to profit with ETFs.

Best wishes,

Ron

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in