Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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

© 2005-2019 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

6 Critical Money Making Rules