Bearish Investors Can Seek Refuge in Recession-Resistant ETFs

March 03, 2025 at 12:00 PM EST

Analysts and investors began to brace for a souring economic environment as the 10-year Treasury yield fell below that of a 3-month note in late February—an inverted yield curve, typically seen as a key indicator of an upcoming recession. Of course, a recession will only be confirmed after at least two-quarters of negative GDP growth, and it is possible that the yield indicator will be incorrect. After all, many analysts predicted a recession in 2024, but it never materialized.

Still, the prospect of a potential downturn is enough to send more risk-averse investors running toward defensive plays. In this case, exchange-traded funds (ETFs) already represent a strong option. These funds tend to diversify across a range of securities typically linked by a common theme or focus, often minimizing risk at the same time.

Some ETFs are particularly recession-resistant due to their defensive strategies. Three such funds—one focused on low-volatility stocks, one targeting the utility sector, and one with a broad basket of consumer staples names—may be worth considering if the economic environment worsens.

Minimize Volatility to Reduce Downside Risk

[content-module:CompanyOverview|BATS:USMV]

Factor investing remains a popular strategy among retail investors, although many overlook volatility compared to more popular factors like momentum and value. But the iShares MSCI USA Min Vol Factor ETF (BATS: USMV), with its focus on limited-volatility equities, could just shore up defenses against a recession. USMV tracks an index of large- and mid-cap stocks with lower volatility than the broader U.S. market.

Investors in USMV access a portfolio of about 185 U.S. firms, roughly two-thirds of which are major players in the information technology, financials, health care, and consumer staples sectors. Assets are well-distributed, with no single name occupying as much as 1.7% of the portfolio as of February 22, 2028.

USMV aims to limit downside risk by focusing on stable companies with a history of minimal share price shifts. However, this also means that upside potential is similarly capped. Year-to-date, as of February 22, 2028, the fund has returned 4.8%, while in the 12-month period ending on that date, it posted returns of 16.1%. In booming economic periods, investing in USMV might mean giving up the potential for gains—but in a recession, investors may be looking for a cautious strategy just like this funds.

Affordable, Broad Access to Utilities and Dividends

[content-module:Forecast|NYSEARCA:XLU]

Investors commonly flock to the utilities sector during a downturn, thanks to the consistent demand for these companies' services. That said, individual companies still face unique risks, particularly during a recession, and diversification through an ETF like the Utilities Select Sector SPDR Fund (NYSEARCA: XLU) provides it.

Utilities is a small sector in terms of the number of names, and XLU holds a relatively broad swath of them, with 66 holdings as of February 22, 2025. Although the portfolio is concentrated in a few stocks—the top five holdings occupied about 40% of invested assets as of that date—XLU's low expense ratio of 0.09% makes it a cheap and effective way of accessing the space. Further, utility names often have attractive dividends, and XLU capitalizes on that with a dividend yield of 2.8% as of the date above.

Inexpensive and Varied Consumer Staples Exposure

[content-module:Forecast|NYSEARCA:VDC]

Consumer staples is another sector that may be resistant to a recession, as companies in this space provide goods vital to everyday life. One issue many investors experience with ETFs targeting consumer staples, however, is a heavy weighting toward major companies like Coca-Cola Co. (NYSE: KO) at the expense of smaller firms. The Vanguard Consumer Staples ETF (NYSEARCA: VDC) manages to respect the sway of Coca-Cola and a handful of other massive consumer staples names while still holding more than 100 different securities. Investors can thus turn to this fund for a balanced approach to the sector that still prioritizes some of the largest players.

Another key benefit to VDC is its low expense ratio. Like XLU, VDC has a fee of just 0.09% per year. This can help to keep investor costs to a minimum during a recession or any other time when every dollar can make a difference in investment outcomes.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

About Us

About Cabling Installation & Maintenance

Contact Cabling Installation & Maintenance

Editorial

Advertising and Sponsorship Sales

Subscriptions and Memberships

Feedback/Problems

Bearish Investors Can Seek Refuge in Recession-Resistant ETFs

Minimize Volatility to Reduce Downside Risk

Affordable, Broad Access to Utilities and Dividends

Inexpensive and Varied Consumer Staples Exposure

Where Should You Invest $1,000 Right Now?

More News