6 Exchange-Traded Funds That Could Withstand a Recession

In times of economic correction and bear markets, certain industries demonstrate resilience and even flourish as consumer habits shift. Sectors like healthcare, information technology, consumer staples, and utilities are known to weather downturns effectively, making them attractive options for investors looking to protect their portfolios during recessionary periods.

Key Takeaways

• Exchange-traded funds (ETFs) offer diversification opportunities for investors.
• Sectors such as healthcare, information technology, consumer staples, and utilities are well-positioned during economic downturns.
• ETFs are passively managed investment funds that consist of a diversified portfolio of stocks.

1. The Consumer Staples Select Sector SPDR ETF (XLP)

• Purpose: XLP tracks the Consumer Staples Select Sector Index
• Total assets: $14.2 billion (as of April 26, 2024)
• Inception date: December 16, 1998
• Average daily volume: 4.5 million
• Dividend yield: 2.56%
• Expense ratio: 0.09%
• Top three holdings:
• The Procter & Gamble Co. (PG): 14.58%
• The Coca-Cola Co. (COST): 12.43%
• Walmart Inc. (WMT): 9.89%

Consumer staples, such as household items like soap and toilet paper, maintain steady demand during market downturns, making them resilient investments.

2. The iShares US Healthcare Providers (IHF)

• Purpose: IHF tracks the Dow Jones U.S. Select Health Care Providers Index
• Total assets: $799.5 billion (as of April 26, 2024)
• Inception date: May 1, 2006
• Average daily volume: 56,915
• Dividend yield: 1.14%
• Expense ratio: 0.40%
• Top three holdings:
• UnitedHealth Group, Inc. (UNH): 23.90%
• Elevance Health Inc. (ELV): 14.46%
• Cigna Corp. (CI): 9.61%

The healthcare sector tends to perform well in recessions as individuals prioritize medical services and insurance coverage helps with out-of-pocket costs.

3. The Vanguard Dividend Appreciation ETF (VIG)

• Purpose: VIG includes U.S. firms with a track record of increasing dividend payments.
• Total assets: $93.7 billion (as of March 31, 2024)
• Inception date: April 21, 2006
• Average daily volume: 587,454
• Dividend yield: 1.72%
• Expense ratio: 0.06%
• Top three holdings:
• Microsoft Corp. (MSFT): 4.02%
• Apple Inc. (AAPL): 3.68%
• Broadcom Inc. (AVGO): 3.35%

Companies in this fund typically have solid financials and cash flows, making them resilient in economic downturns.

4. The Utilities Select Sector SPDR ETF (XLU)

• Purpose: XLU tracks the Utilities Select Sector Index
• Total assets: $12 billion (as of April 29, 2024)
• Inception date: December 16, 1998
• Average daily volume: 23.4 million
• Dividend yield: 3.47%
• Expense ratio: 0.09%
• Top three holdings:
• NextEra Energy, Inc. (NEE): 13.91%
• Southern Company (SO): 8.16%
• Duke Energy Corp. (DUK): 7.66%

Utility companies typically implement cost-cutting measures during recessions, making them resilient. Their strong financial positions contribute to their stability in economic downturns.

5. The Invesco Food & Beverage ETF (PBJ)

• Purpose: PBJ tracks the Dynamic Food & Beverage Intellidex Index
• Total assets: $128.5 million (as of April 30, 2024)
• Inception date: June 23, 2005
• Average daily volume: 17,909
• Dividend yield: 0.60%
• Expense ratio: 0.57%
• Top three holdings:
• Kroger Company (KR): 5.37%
• Kraft Heinz Co (KHC): 5.04%
• Constellation Brands Inc (STZ): 4.94%

Food and beverage companies, part of consumer staples, remain stable during downturns by leveraging strategies like corporate philanthropy and global partnerships to maintain market presence.

6. The Vanguard Consumer Staples ETF (VDC)

• Purpose: VDC tracks the MSCI US Investable Market Index/Consumer Staples 25/50
• Total assets: $9.7 billion (as of March 31, 2024)
• Inception date: Jan. 26, 2004
• Average daily volume: 141,000
• Dividend yield: 1.72%
• Expense ratio: 0.10%
• Top three holdings:
• The Procter & Gamble Co. (PG): 12.00%
• Costco Wholesale Corp. (COST): 10.03%
• Walmart (WMT): 7.95%

Alongside producers, retailers like Walmart and Costco, known for consumer staples, maintain stability during economic downturns as shown in the National Retail Federation rankings.

The Great Recession of 2008-2009 and the economic impact of the COVID-19 Pandemic represent recent global recessionary periods.

In response to recessions, governments often implement fiscal policies such as tax rate adjustments and increased spending to stimulate demand and economic activity.

Industries heavily impacted by economic downturns include airlines, automobile manufacturers, and hotels.

The Bottom Line

Industries resilient during recessions encompass essential sectors like utilities, healthcare, consumer staples, and technology. ETFs provide investors with an avenue to invest in these sectors known for their ability to withstand economic downturns.