On May 15, Goldman Sachs economists, led by Jan Hatzius, lowered their U.S. economic growth forecasts due to expectations of the Fed’s aggressive interest rate hikes to bring down the inflationary pressures. They now expect the country’s GDP to grow 2.4% in 2022 and 1.6% in 2023, lower than the earlier forecasts of 2.6% and 2.2%, respectively. Furthermore, Goldman Sachs Senior Chairman Lloyd Blankfein warns companies and consumers of the high recession risk.
Amid the growing possibility of the U.S. economy sliding into recession, it could be wise to invest in defensive ETFs. These ETFs invest in companies operating in recession-resistant sectors, including consumer staples, consumer discretionary, energy, healthcare, education, utilities, and defense. Given an inelastic demand for the products and services, specific sectors tend to perform relatively well in a weak economy.
Against the backdrop, investing in Defensive ETFs like Fidelity MSCI Utilities Index ETF (FUTY), GraniteShares Gold Shares (BAR), and Consumer Staples Select Sector SPDR Fund (XLP) could be good additions to your portfolio.
Fidelity MSCI Utilities Index ETF (FUTY)
FUTY tracks an index of U.S. utility stocks. The fund establishes exposure to a low-risk segment and provides relatively high distribution yields. FUTY is appealing to portfolio managers that implement a sector rotation strategy. Most long-term and buy-and-hold investors tend to achieve utility exposure through this broad-based equity fund. It owns more than 60 companies, including small-cap companies.
FUTY tracks the MSCI USA IMI Utilities 25/50 Index. It has an expense ratio of 0.08% compared with the category average of 0.43%. It has a total of 66 holdings. FUTY's major holdings include NextEra Energy, Inc. (NEE) with 12.04% weighting, followed by Duke Energy Corporation (DUK) and Southern Company (SO) with 7.24% and 6.76% weighting, respectively. It has assets under management of a total of $1.90 billion. Over the past six months, FUTY's fund flows came in at $670.17 million and $741.05 million over the past year. It has a beta of 0.41.
The fund pays a $1.25 annual dividend, which yields 2.77% at the prevailing share price. Its dividend payouts have increased at a 3.8% CAGR over the past three years and 3.3% CAGR over the past five years. FUTY has improved 5.2% over the past six months and 8.4% over the past year to close the last trading session at $46.21. It has a NAV of $46.20 as of May 20, 2022.
FUTY's strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FUTY has a Trade grade and a Buy & Hold grade of A. The fund is ranked #2 among 13 ETFs in the A-rated Utility ETFs group. To get additional POWR Ratings (Peer) for FUTY, click here.
GraniteShares Gold Shares (BAR)
BAR tracks the gold spot price using physically held gold stored and secured in vaults in London and custodied by ICBC Standard Bank. The grantor trust structure protects investors as trustees cannot lend the gold bars. Being a physical gold fund, any long-term gains will result in noteworthy tax liabilities since it is considered a collectible.
BAR tracks LBMA Gold Price PM ($/ozt) Index. It has an expense ratio of 0.17% compared to the 0.46% category average. It has a total of 1 holding. The fund’s major holding includes Gold with 100% weighting. It has $999.80 million in assets under management. BAR's fund flows came in at $70.64 million over the past three months and 93.95 million over the past six months. It has a beta of 0.11.
BAR has gained 2.2% year-to-date to close the last trading session at $18.29. It has a NAV of $18.19 as of May 20.
BAR’s POWR Ratings reflect a strong outlook. The ETF has an overall B grade, equating to Buy in our proprietary rating system.
BAR has an A grade for Peer and a B grade for Buy & Hold. The fund is ranked #4 among 38 ETFs in the Precious Metals ETFs group. To access the remaining BAR ratings (Trade), click here.
Consumer Staples Select Sector SPDR Fund (XLP)
XLP offers exposure to the consumer staples sector. This fund is an attractive option for investors looking to implement a sector rotation strategy that may perform well during a market downturn. This ETF provides impressive liquidity, cost efficiency, and dept of exposure. Its holdings are nearly all large-caps, which investors may prefer due to their familiarity and stability. It provides exposure to stock in the industries, including food and staples retailing, beverage, food products, tobacco, household, and personal products. The index is reconstituted quarterly.
XLP tracks Consumer Staples Select Sector Index. It has an expense ratio of 0.10% compared to the 0.38% category average. It has a total of 33 holdings. The fund’s major holdings include Procter & Gamble Company (PG) with 15.77% weighting, Coca-Cola Company (KO) with 10.79% weighting, PepsiCo, Inc. (PEP) with 10.27%, and Costco Wholesale Corporation (COST) with 8.64% weighting. It has $15.06 billion in assets under management. Over the past year, XLP’s fund flows came in at $3.93 billion, while its NAV was $70.72 as of May 20, 2022.
The ETF pays a $1.73 dividend annually, yielding 1.89% at the current price. Furthermore, XLP’s dividends have increased at a 3.9% CAGR over the past three years and a 5.5% CAGR over the past five years. Over the past year, XLP has decreased marginally to close the last trading session at $70.70. It has a beta of 0.63.
XLP's strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A for Peer grade and a B for Buy & Hold grade. Among the 48 ETFs in the Consumer-Focused ETFs group, it is ranked #1. To get additional POWR Ratings (Trade) for XLP, click here.
FUTY shares were trading at $46.70 per share on Monday afternoon, up $0.49 (+1.06%). Year-to-date, FUTY has gained 1.53%, versus a -16.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
3 Defensive ETFs to Buy After Goldman Sachs Lowers Their U.S. Economic Growth Forecast StockNews.com
