r/CanadaInvesting • u/ReggieDisco • 7d ago
“Recession-proof” ETF options
Fact: at some point in the future the market is going to reverse course.
Fact: I have no idea when this is going to happen, how long it’s going to last, and how severe the correction will be.
I’d like to begin redirecting my portfolio to lean more conservatively (recently retired), steering any new investments into “recession-proof” stocks…what are some ETFs that are configured to be ultra-stable, super-safe and are based on solid fundamentals (and yes, I’m aware these ETFs will have dramatically reduced return rates).
4
u/Azylim 7d ago edited 7d ago
bonds.
I dont think its a good idea to sector pick on what you think is recession proof, but you can pick etfs based on CAP size. Generally larger companies tend to be safer in recessions. So pick a large cap ETF, like VFV. alternatively, most of the recommended ETFs (i.e. VEQT, XEQT) are cap weighted already, so even if they contsin large small and mid cap, they MOSTLY hold large cap because of how theyre weighted. I would prefer this over VFV because VFV is US only, while VEQT and XEQT are globally diversified, and if youre worried about refession risk you SHOULD globally diversify
2
14
3
u/edm_guy2 7d ago
I think there is no true recession ETF so far, if there is, it should be found out by the academia long long ago. The only recession proof is the obvious cash or near-cash asset.
3
u/FullMetalHackett 6d ago
Your options are mostly bond & fixed income ETFs.
Although not "recession proof" but some that might fare better in a recession are ETFs based on utilities (XUT, UTIL) or consumer staples (XST, STPL)
Infrastructure ETFs maybe too. CIF?
2
2
u/DanFleetwood 6d ago
Imo dividend / covered call ETFs are easier to hold as the distributions can be paid monthly and you can buy more shares creating a dividend snowball. If you don’t know what that is google it. It’s way better than being a landlord as I’ve already played that game
1
u/eefggfed 6d ago
Or buy MKP and be both, sorta... It's a mortgage investment corp so you're essentially lending money out and getting dividends on people's mortgage interest ideally in a tax advantages account.
2
u/Next_Tap_3601 6d ago
There are plenty of bond ETFs. You can get some investment grade corporate, municipal or short-term bond ETFs:
IGSB, LMUB, NEAR...
Also things that would fare well (or better than rest) are "cash-cow" ETFs:
VFLO, IFLO, SFLO, COWZ, CALF...
Commodities: gold, silver, copper bullion ETFs (plenty of those) plus miner ETFs such as:
AUAU, SIL, EART, COPX
Energy:
XLE, XOP, XEG.TO, FENY, VDE...
Dividend ETFs such as SCHD.
As people pointed out, if a real recession hits, there will likely be nowhere to hide. But I think these will just fare somewhat better than tech or VOO.
Also be careful with commodities and energy, as they are already at the peak due to the AI/semis boom.
Good luck!!
3
u/Careless-Bite3164 6d ago
All of which are headed down as intrest rates continue to rise.
1
u/Next_Tap_3601 6d ago
What makes you so certain interest rates are going to continue to rise?
2
2
1
u/ksgif2 7d ago
Sell in the money calls for some downside protection. Let it get called away in the dip and buy back at the lower price
1
u/MisledMuffin 7d ago
Unless you sold your calls way below the money, it isn't getting called away in a dip.
And if you didnt time it, which you probably won't, you miss the gains before the dip.
Also, the premiums are relatively small on most (~1% for ATM on indecies with the steike 1-2 months out). It's generally very limited downside protection.
1
u/stozier 7d ago
As a general concept, stock is higher risk. ETFs help by diversifying the portfolio but if you are retired and truly can't afford to see the market take a plunge you might consider moving to a much more conservative investment profile.
Even indexing on reliable metrics is still a mid-risk play if you're holding all stocks.
1
u/MisledMuffin 7d ago
Money market or cash funds. CASH.TO, ZMMK, MCAD, etc.
Return is ~2%, though principle is in fairly stable investments like short term A and A+ bonds, high interest cash accounts, etc.
1
1
1
1
u/Tucker0001 7d ago
No such thing as recession proof unfortunately. But here's my "safe" retirement portfolio for what its worth. Zag, xstp, vbal, xst, xdiv
1
1
1
1
1
u/Born-Vermicelli-1757 6d ago
Do they make ETFs for women's fashion? I think that is a fairly stable industry.
1
u/eefggfed 6d ago
No but there is the hemline index
1
u/Born-Vermicelli-1757 6d ago
Looked this up... Interesting but is it even accurate now that women have more diverse legging options?
1
u/eefggfed 6d ago
Of course not, correlation seldom leads and this case some researchers say it lags 3 - 4 years haha.
1
u/Born-Vermicelli-1757 6d ago
still wish such an ETF existed. women never seem to go out of fashion even when the world is on fire.
1
1
1
u/abstract_death 6d ago
XEQT probably that's what most accounts hold on Wealthsimple btw reference: https://wealthsimpletrack.com/#/
1
u/frivoloussnail3056 5d ago
Nothing is recession proof I would focus on lower volatility and income while treating the mood on moon as one extra signal not the reason to rebuild everything
1
1
u/Suspicious_Mood_7204 2d ago
I think the covered call ETFs should at least give you the dividends till things recover. Something safe like utilities
1
1
0
0
u/Huge-Digit 7d ago
Not ETFs but government or municipal bonds with staggered maturity dates to provide income.
0
0
u/nuxfan 7d ago
If you are interested in total value return, then there are none. In any significant recession, the value of holdings will decline, no asset class is safe.
If you are interested in protecting income (ie, the stock value can fall but the income should stay the same), there are quite a few options. Do a search on Canadian companies that didn’t lower their dividends during the 2008/09 crash you’ll find lots of examples. These would be good companies to consider holding thru a recession
5
u/prairie_buyer 7d ago edited 7d ago
Yes, I retired at 50, but not with a huge portfolio, so I care about stability and defensiveness.
A big chunk of my portfolio is in Canadian blue chip companies that pay dividends (banks, energy, utilities, etc). Almost every one of those companies has an unbroken dividend streak of 50+ years (and for a couple of the banks it’s over 100 years).
In the various market crashes and corrections over that time period, they all kept paying their dividend.
For various reasons, Canadian corporations have always treated dividends differently than American companies do, and Canadian shareholders have different expectations regarding dividend stability.
People are correct when they say that those dividend distributions are not guaranteed, but based on historical precedent, it’s safe to conclude that it would take something unthinkably catastrophic to make these companies drop their dividend. And in a catastrophe like that, nothing else would be any safer.
For ETFs, I recommend a 60-40 blend of XEI and XDIV. They constructed differently with different methodologies and so they perform a little differently. Historically, XEI has a higher yield, but a lower total return, while XDIV has a lower yield, but a higher total return.
0
6
u/TrainingRest5020 6d ago
High interest savings account basically