Best Recession-Proof ETFs Right Now

Fortunately, the U.S. economy has continued the longest expansion ever recorded. It hasn’t dipped into a recession since June 2009, even though many were concerned that, going into 2023, the economy could have everything from a full-blown recession to a ‘soft landing”. But, the COVID-19 pandemic has rocked an otherwise strong U.S. marketplace. Fears of an imminent recession are surfacing in the investing world. You may have already started looking for downside protection for your portfolio. 

In a slowing economy, many investors stay long on stocks while building up a defense. Exchange-traded funds (ETFs) are good option funds to buy as part of a defensive trade strategy. For better protection, you need to find broadly diverse funds that track defensive indexes, and Benzinga can help you do that. You simply cannot purchase the first ETFs you find. you need ETFs that have a strong performance record and allow you to see long-term gains.

Quick Look: The Best Recession-Proof ETFs

• Vanguard Dividend Appreciation ETF (VIG)
• Health Care Select Sector Fund SPDR ETF (XLV)
• Consumer Staples Sector ETF (XLP)
• iShares US Healthcare Providers ETF (IHF)
• Vanguard Consumer Staples ETF (VDC)

5 Recession-Proof ETF(s) by AUM

If a recession hits, no one knows how long it will last or how severe it will be. So, you need the best defensive investment you can get. Recession-proof ETFs with high assets in management (AUM) and low expense ratios. Here are some of the best recession-proof ETFs right now. Remember, nothing is 100% recession-proof, but you can be sure that some ETFs will perform better in a recession than others. Do your research, weigh the level of the investment you’ve made and don’t be afraid to close positions that aren’t working for you. Yes, these ETFs may have billions under management, but are they right for you? Do they diversify your portfolio? Do they match your investment strategy?

1. Vanguard Dividend Appreciation ETF (VIG): Large-cap growth stocks equal generous dividends. VIG uses this truism to boost its dividend growth. It picks big companies that have increased dividend distribution over the last 10 years. This makes this VIG very popular with investors who like the fund’s sector-leading yields and cheap expense ratio (ER) of 0.06%

VIG focuses a bulk of its $35 billion AUM on the industrial, technology and consumer cyclicals. Its major holdings are Microsoft Corp (NASCO: MSFT), Visa Inc (NYSE: V), Walmart (NYSE: WMT) and Procter & Gamble (NYSE: PG). Sometimes, the fund gets too growth-oriented for this sector by focusing more on stock selection than income. However, it delivers more income through its 2.11% distribution yield than any other recession-proof ETF. 

2. Health Care Select Sector Fund SPDR ETF (XLV): XLV is the main gateway to broad exposure to the health care sector — period. This fund has an AUM of $18.2 billion. Its high liquidity enables it to trade at volumes that far outdistance its competitors. Plus, it has a comparably cheap ER of 0.13%.

This ETF does a good job of tracking its index of health care companies within the S&P 500. It leans heavily toward mega-cap companies. Some of the big names are Johnson & Johnson (NYSE: JNJ), Pfizer (NYSE: PFE), Eli Lilly (NYSE.LLY) and Merck (NYSE: MRK). This investing approach allows XLV to funnel impressive dividends levels through its 2.64% distribution yield. 

3. Consumer Staples Sector ETF (XLP): This ETF mirrors a group of consumer-staple stocks within the S&P 500 Index. Investors can expect a slightly concentrated exposure to consumer-staples companies from XLP. Consumer staple companies provide basic everyday products like food, household goods and personal hygiene items. 

This fund’s conservative approach explains the reason its portfolio asset allocation is very top-heavy. With an AUM of $12.65 million, XLP dedicates 72.66% of its allocation to the top 10 holdings. The portfolio features large-cap companies with famous names like Walmart (NYSE: WMT), Coca-Cola (NYSE: KO) and Costco (NASDAQ: COST). This strategy and the 3% distribution yield can bring comfort to recession conscious investors. Plus, XLP has high liquidity and a low ER of 0.13%.

4. The iShares US Healthcare Providers ETF (IHF) Tracks the Dow Jones U.S. Select. Health Care Providers Inde, with over a billion dollars in assets gathered since 2006, the top holdings for the fund include UnitedHealth Group (UNH), CVS Health Corp. (CVS) and Cigna Corp. (CI).

Vanguard Consumer Staples ETF (VDC)

The Vanguard Consumer Staples ETF (VDC) aims to track the largest consumer staple brands and their index performance.

Recession-Proof ETFs Biggest Gainers and Losers

No investment is 100% safe. Even a recession-proof ETF doesn’t always deliver as expected. This is the reason the selection process is important. Biggest gainers and losers lists help you make a good decision on a recession-proof ETF. By reviewing these daily lists, you can gauge how well individual ETFs move in real-time. Generally, you’re looking for ETFs that are:

• Trending up over the long-term
• Remaining stable
• Moving with the market without being undone by the market
• Providing solid dividends
• Demonstrating wise management and an ability to pivot with the market

Remember, though, that recession-proof stocks are not necessarily impervious to a recession. They simply don’t feel the hit that the market will take like other assets. The same is true of ETFs. Yes, they might dip, but they don’t tend to crash in a down market.

Use this information judiciously as gainers can tumble and losers can rise overnight. You must use this information to let you know when to best enter a position so that you can turn a quick profit or buy at the dip to give yourself room to grow your portfolio.

Premarket Recession-Proof ETFs

The premarket sessions are available for you in specific circumstances. However, the premarket sessions are different from regular trading sessions. Volume is lower — the buy and ask spread is wider. 

Trends that occur in the premarket don’t always continue during normal trading hours. If you are a novice investor, study the premarket until you get a good understanding of its nature. You can see what happened the day before, if this is the time to jump into an ETF at the dip or decide to back out of an ETF that doesn’t seem to be holding up to current economic pressures.

Aftermarket Recession-Proof ETFs

Late-breaking events and news can affect your ETF holdings. The aftermarket sessions give you an option to make trades after the close of the regular trade session. However— like in penny stocks — trade volume is much lower than normal trading hours and the premarket. Weigh the risks of aftermarket trading against the benefits of your trade. Generally, aftermarket trades can give you:

• A chance to buy at the dip
• Time to trade when volume drops and price are more stable
• Even more information on the general sentiment around your chosen ETF

Why Invest in Recession-Proof ETFs?

• High liquidity: Investors trade ETFs like stock. Trade volume among funds frequently exceeds 2 billion shares per day. This high liquidity allows you to switch positions as many times as you like — or you can simply cash out your recession-proof ETFs without paying penalty fees. 
• Simple instruments: Futures and options contracts can be hard to understand. Since recession-proof ETFs follow established indexes, these ETFs only require minor adjustments. There is no need for you to keep track of the inner workings of your holdings.
• Tax friendliness: Recession-proof ETFs are more tax-friendly than mutual funds. Mutual fund holders must annually pay capital gains taxes. With ETFs, your investment only becomes subject to capital gains after you sell the fund. So, you get to choose when you assume your capital gains assessment. 
• Peace of mind: When you invest in ETFs, you get a bit of peace of mind that is more than necessary when investing. Of course, ETFs are not perfect, but they can perform better than most assets because of how they are managed.

Best Online Brokers for Recession-Proof ETFs

Whether you are a novice or an advanced trader, online brokers offer you the tools and resources to trade your recession-proof ETFs with relative ease. There are many to choose from. But Benzinga helps you narrow down the field by presenting you with a list of the 3 best online brokers for recession-proof ETFs.

1. You Invest by J.P. Morgan

If you’re already a customer with Chase Bank, Chase You Invest by J.P. Morgan is a no-brainer. You can easily research, trade and manage your investments from your mobile device. You Invest provides online tools to search for investments, track companies and rollover your assets.

Only U.S. clients are able to open a You Invest account but it takes, on average, just a day to open and you’re able to apply fully online. Equipped with portfolio reports and pie charts, the mobile app is simple and user-friendly. The app is available for both iOS and Android devices.

With Chase You Invest, you’ll have access to roughly 5,000 stock exchanges. There are plenty of research and educational tools provided on the app. It’s easy to open and fund an account. It’s also reliable thanks to its strong parent company, J.P. Morgan. 

2. TradeStation 

You can make commission-free recession-proof ETF trades on any of TradeStation’s 3 award-winning platforms. With its advanced tools for algorithmic and automated trading, TradeStation mainly attracts active traders. But casual traders can use its web platform to take advantage of the online broker’s powerful trading technology.

Tradestation offers access to more than 2,000 ETFs. From any of its platforms, you can research your trade ideas with real-time market data on customizable charts, graphs and videos. You can expand your investing knowledge with tutorial and instructional videos. Plus, extended hours trading is available. 

3. Firstrade

Firstrade ranks high among online brokers for accommodating beginning ETF traders, trading platforms and onboarding. It offers $0 trades and free access to all of its trading platforms and tools. Firstrade’s research tools include screeners, interactive charts, heat maps and an economic calendar. 

Also, Firstrade research offerings provide trading ideas for recession-proof ETFs. It features preset peer group comparison and data plotting. This broker also supplies a nice amount of fundamental data for OTFs. This includes the fund’s financial statements, peer group companies and dividend calendar. 

4. TD Ameritrade

TD Ameritrade gets a perfect score for active and beginner traders. You can make $0 ETF trades with the comfort of knowing you have the best trade support available. It provides the best in trading platforms, automated trading, research, education and customer service. 

You can take advantage of all the broker’s vast resources and tools free of charge. This includes TD Ameritrade’s thinkorswim. Available on desktops, web and TD Ameritrade mobile, this state-of-the-art trading platform features customizable charts, technical analysis tools, backtesting and real-time news. Plus, this broker offers extended-hours trading. 

You, Recession-Proof EFTs and the Near Future

Nobody has a crystal ball. You can look at current conditions and draw your own conclusions. There is a solid choice today for building your defensive strategy. Recession-proof ETFs provide a low-risk and inexpensive way to get exposure to many of the most stable firms in the U.S. economy.