5 Safe ETFs To Play Amid Recession Fears

Mockup, Typewriter, Word, Money, Wall Street, Etf

Image Source: Pixabay

The U.S. stock market is shaping up for the worst year in decades. This is especially true as the S&P 500 slipped into the bear market on renewed inflation concerns that could push the economy into a recession. Russia’s invasion of Ukraine, tightening monetary policy and surging commodity prices have been weighing on investors’ sentiment.

Given the myriad of woes, investors should stash their cash in ETFs of some safe investing zones. These are SPDR Gold Trust ETF (GLD - Free Report), iShares 20+ Year Treasury Bond ETF (TLT - Free Report), iShares Edge MSCI Min Vol USA ETF (USMV - Free Report), Vanguard Dividend Appreciation ETF (VIG - Free Report) and AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report).

After cooling somewhat in April, U.S. consumer prices accelerated at the fastest rate in May since 1981, as Americans grapple with a surge in the cost of gas, food, and shelter. The consumer price index jumped 8.6% year over year to a fresh 40-year high, from an 8.3% annual increase recorded in April. The data has put pressure on Fed to extend an aggressive series of interest rate hikes and has added to political problems for the White House and Democrats. To quell the four-decade high inflation, the Federal Reserve raised interest rates by 75 bps, the biggest interest-rate increase since 1994.

As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation is hurting growth. Additionally, energy and food bills have been rising around the world. The World Bank expects growth in the United States to hit 2.5% in 2022, down from 5.7% in 2021.

The S&P 500 is now down 22.4% so far this year. If the year ended with this loss, the S&P 500 would register its worst annual decline since 2008 and its second-worst annual decline since 1974. On a total-return basis, the index lost 37% in 2008 and 26.5% in 1974.

We have highlighted the five zones and their ETFs in detail below:

Gold - SPDR Gold Trust ETF 

Gold is viewed as a safe haven in times of economic or political turmoil. Concerns over the global recession have raised the appeal for the bullion as a store of value and hedge against market turmoil. As such, the ultra-popular product tracking this bullion like GLD could be an interesting pick. SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with an AUM of $62.4 billion and a heavy volume of nearly 8 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF

The products tracking the long end of the yield curve often provide a safe haven. TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It holds 33 securities in its basket and charges 15 bps in annual fees. iShares 20+ Year Treasury Bond ETF has an average maturity of 25.87 years and an effective duration of 8.13 years. TLT is one of the most popular and liquid ETFs in the bond space, with an AUM of $18.8 billion and an average daily volume of 21 million shares.

Low Volatility - iShares Edge MSCI Min Vol USA ETF 

Low volatility products have the potential to outpace the broader market providing significant protection to the portfolio. These include more stable stocks that have experienced the least price movement. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets. While there are several options, USMV, with an AUM of $25 billion and an average daily volume of 3.9 million shares is the most popular ETF. The fund offers exposure to stocks that have lower volatility characteristics relative to the broader U.S. equity market.

iShares Edge MSCI Min Vol USA ETF tracks the MSCI USA Minimum Volatility Index, holding 173 stocks in its basket. The product charges 15 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

Dividend - Vanguard Dividend Appreciation ETF 

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth like VIG seem to be good picks.

Vanguard Dividend Appreciation ETF holds 289 stocks in its basket with an AUM of $59.4 million. The fund trades in a volume of 1.6 million shares a day on average and charges 6 bps in annual fees. Vanguard Dividend Appreciation ETF has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Long/Short - AGFiQ US Market Neutral Anti-Beta Fund

AGFiQ US Market Neutral Anti-Beta Fund has the potential to generate positive returns regardless of the direction of the stock market as long as low-beta stocks outperform high-beta stocks. It invests primarily in long positions in low-beta U.S. equities and short positions in high-beta U.S. equities on a dollar-neutral basis within sectors. AGFiQ US Market Neutral Anti-Beta Fund has an AUM of $175.4 million and an expense ratio of 2.53%. It trades in an average daily volume of 196,000 shares

Disclaimer: Neither Zacks Investment Research, Inc. nor its Information Providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the Information on the Web ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.