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The 7 Best ETFs for Bear Markets & Recessions (Defensive) - YouTube
Channel: Optimized Portfolio
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bear markets recessions and market
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downturns are largely unpredictable by
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their very nature here we'll look into
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the best defensive etfs to weather the
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storms and survive or even thrive during
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periods of market turmoil attempting to
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time the market predicting bear markets
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and recessions is usually more harmful
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than helpful what we can do however is
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prepare ahead of time by assembling a
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diversified defensive portfolio of
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different assets geographies and equity
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styles the key to portfolio
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diversification is in holding
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uncorrelated assets for example when
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stocks go down bonds tend to go up
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diversification seems to be the only
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free lunch in the market in that sense
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diversification is particularly
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important for investors with a short
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time horizon or low risk tolerance
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warren buffett's number one rule is
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never lose money mitigating drawdowns
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preserves capital black swan events and
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even extended bear markets and
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recessions are largely unpredictable but
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there's no reason to simply withdraw to
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cash out of fear the defensive etfs here
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help increase portfolio diversification
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and provide downside protection so that
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risk investors can have peace of mind
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during periods of market turmoil
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historically there have been specific
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defensive asset types and sectors that
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are more resilient to bear markets and
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recessions some of which are
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colloquially referred to as crash proof
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these include utilities consumer staples
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treasury bonds gold put options low
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volatility stocks and of course inverse
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etfs here we'll explore the seven best
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defensive etfs to capture these assets
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and stave off drawdowns first on the
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list is futy the fidelity msci utilities
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index etf demand for utilities like
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water and electricity stays relatively
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constant during recessions and bear
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markets these services are usually the
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last expense consumers cut consequently
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utilities rarely experience drops in
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revenues and are thus considered
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defensive stocks the sector is also
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popular for providing consistent and
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high dividends futy seeks to track the
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msci usa imi utilities index and has an
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expense ratio of 0.08
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next on the list is vdc the vanguard
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consumer staples etf similarly demand
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for consumer staples everyday products
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that people need like dish soap
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deodorant toothpaste food beverages etc
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is non-cyclical and doesn't change much
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during economic downturns as consumers
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are unwilling or unable to stop buying
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these products thus consumer staples
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stocks like johnson and johnson and
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procter and gamble tend to weather
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storms well and are considered to be
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defensive stocks these stocks also
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usually maintain a consistent dividend
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payment during recessions and bear
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markets like utilities consumer staples
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have the added benefit of being lowly
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correlated with the broader market the
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vanguard consumer staples etf vdc has
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over 6 billion dollars in assets and
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over 90 holdings across the u.s consumer
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staples sector the fund seeks to track
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the msci u.s investable market consumer
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staples 2550 index and has an expense
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ratio of 0.10 percent next on the list
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is vgit the vanguard intermediate term
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treasury etf treasury bonds offer the
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lowest correlation to stocks of any
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asset type and are considered a flight
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to safety asset since they're backed by
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the us government treasury bonds are the
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go-to diversifier to add downside
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protection and volatility reduction in a
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diversified investment portfolio
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alongside stocks the popular 60 40
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portfolio shows how well this
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relationship has worked for decades when
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stocks go down bonds tend to go up this
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relationship is conveniently amplified
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during market downturns and periods of
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high volatility during which investors
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usually flock to treasury bonds for
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safety the vanguard intermediate term
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treasury etf vgit roughly matches the
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average maturity of the total u.s
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treasury bond market and is a
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one-size-fits-all bond duration between
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short and long suitable for any investor
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this etf has over 10 billion dollars in
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assets and a low expense ratio of only
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0.05 percent next on the list is sgol
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the aberdeen standard physical gold
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shares etf commodities are also
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considered a safe asset during market
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turmoil the most popular of which is
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gold the shiny metal acts as a store of
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value and performs well when the value
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of fiat currency is on the decline
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uncertainty in the market and or falling
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stocks usually have investors running to
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gold at least for a small part of their
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portfolio gold has a special
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diversification benefit of being
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uncorrelated to both stocks and bonds on
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average the aberdeen standard physical
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gold shares etf sgol is physically
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backed by gold bullion this etf tracks
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the spot price of gold bullion and is
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the most affordable gold fund out there
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with an expense ratio of 0.17 percent
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next on the list is t-a-i-l or tail the
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cambria tail risk etf tail from cambria
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rolls slightly out of the money or otm
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put options on the s p 500 which are
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basically an insurance policy that pays
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out in a major crash the fund holds
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mostly intermediate nominal and real
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treasury bonds to help pay for the
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premiums of the small allocation of put
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options i don't want to get too in the
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weeds on options specifics but otm
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options are cheaper and possess greater
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convexity but because of this we would
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only expect them to pay out big in a
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severe crash not necessarily in a minor
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market dip tail has a little over 400
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million dollars in assets and a fee of
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0.59
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last on the list is usmv the ishares
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edge msci minvall usa etf speaking of
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low volatility we can specifically
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target that factor with a popular fund
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from ishares funds like usmv allow
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investors to stay in stocks while
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reducing portfolio risk and minimizing
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drawdowns during bear markets and
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recessions this fund finds stocks in the
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market that exhibit low volatility ranks
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them and then also looks at their
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expected future volatility before
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deciding whether or not they make the
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cut this etf has over 34 billion dollars
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in assets and an expense ratio of 0.15
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percent last on the list is sh pro
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shares short s p 500 true bears may
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simply prefer to directly short or bet
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against the market this can be done with
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inverse etfs these products use swaps
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and debt to provide the opposite return
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of the underlying index in this case if
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the index drops by a dollar your
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position increases by a dollar the pro
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shares short s p 500 sh provides the
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inverse return of the s p 500 index the
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fund has nearly three billion dollars in
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assets and an expense ratio of 0.89
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how do you prepare for bear markets in
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your portfolio let me know in the
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comments thanks for watching some of the
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first-hand experience with every product
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or service i recommend and i recommend
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them because i genuinely believe they
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are useful
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