4 Recession-Proof ETFs To Buy Right Away

The stock market is caught in a vicious circle of volatility and uncertainty, leading to risk-off investor sentiment once again after a significant rally in the first nine months of 2018. The flattening yield curve, U.S.-China trade tensions, and global growth worries have resulted in recent market gyrations.

In particular, the flattening yield curve (a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts) has sparked fears of recession. Notably, the spread between the 10-year yield over its two-year counterpart shrank to the smallest since the start of the financial crisis in January 2008. As the relationship between the 2-year and 10-year yields is often used as a barometer of investor expectations for economic growth, the inversion of the yield curve signals a slowdown in the world's largest economy and thus, is a cause of concern.

Additionally, doubts over the U.S.-China trade war truce agreement have been growing with contradictory statements from the administration. The arrest of a chief financial officer of China's Huawei Technologies has also threatened to cause another flare-up in tensions between Washington and Beijing. These issues were compounded by the persistent slowdown in China, troubles in the emerging market and deteriorating economic growth in developed markets. Moreover, even the holiday optimism failed to drive the stocks higher.

As a result, the S&P 500 and Dow Jones were down more than 4% in a month. High growth and high beta stocks saw dire trading with investors fleeing riskier assets classes in search of safe havens. Tech and biotech stocks bore the brunt and this had a ripple effect on the other sectors too.

Amid such backdrop, investors should stash their cash in some conventionally secure and recession-proof corners of the broad market. Below, we have highlighted a few ETFs from these sectors:

Utilities Select Sector SPDR (XLU - Free Report)

Being the low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus, considered a defensive investment or safe haven amid economic or political turmoil. While there are several options in the space, the ultra-popular XLU seems a good bet. With AUM of $8.2 billion, it provides exposure to a small basket of 29 securities by tracking the Utilities Select Sector Index. The product charges 13 basis points (bps) in annual fees and sees a heavy volume of around 17.5 million shares on average. XLU has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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