7 ETFs To Buy In A Recession

7 ETFs To Buy In A Recession

When the economy transitions from expansion to contraction and the market transitions from a bull to a bear, investors can’t expect all the same stocks and funds to outperform and the same investing strategies to continue to work.

Economic fears due to the spread of the COVID-19 coronavirus has led the market to plummet in the past month, with the Dow Jones Industrial Average falling from the 30,000 level to under 19,000 earlier this week.

Investors priorities flip from maximizing gains to minimizing risk, and buying volume rotates into brand new pockets of the market. The past few weeks of trading in the market may seem like total chaos, but a closer look reveals certain groups of stocks and funds are outperforming others.

Here are seven ETFs to consider that could outperform during a U.S. recession.

1. Health Care SPDR XLV

The health care sector is one of the main sectors of the economy that has historically been a defensive place for investors to put their money during economic downturns.

While other businesses are shutting down amid the COVID-19 outbreak, demand for health care services is booming. In the longer term, the fact that former Vice President Joe Biden has surpassed Senator Bernie Sanders as the likely Democratic presidential candidate further eliminates risks associated with a radical overhaul of the U.S. health care and pharmaceutical industries.

In the past month, the XLV ETF is down just 21.6% compared to a 29.5% drop by the overall S&P 500.

2. Utilities SPDR XLU

Another potential place for investors to find safety during a recession is Utility stocks. In addition to its relative stability and downside valuation protection, the XLU ETF pays a generous 4.6% dividend yield.

Utilities have historically outperformed during economic downturns because Americans must keep the lights on and water flowing no matter how bad it gets. Many utilities have limited competition and operate under strict government regulations, which further serve to create a stable earnings and revenue environment.

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