2 Funds To Shield Your Portfolio From Economic Collapse

On Wednesday, the minutes from the March FOMC meeting revealed the Fed staff is predicting the U.S. economy will slip into a recession during the second half of the year. The tone of the comments suggests the Fed is actually fine with a mild recession if that’s what it takes to finally squash inflation.

Given the old saying of “don’t fight the Fed,” it makes sense to continue to look for funds that contain stocks that tend to perform well during economic slowdown or recession.

During such times, investors often turn to defensive strategies, such as investing in more stable assets.

One of the more interesting ways to employ this kind of strategy is the Consumer Staples Select Sector SPDR Fund (XLP).

The XLP tracks the performance of the Consumer Staples Select Sector Index, which is made up of companies that produce or distribute items, such as food and beverages, tobacco, and other household products. These are products that people need regardless of the economic climate, making them less sensitive to economic cycles.

In times of recession, consumers may cut back on discretionary spending, but they still need to buy basic necessities. This makes the consumer staples sector relatively stable, and XLP can provide a defensive investment option for investors looking to protect their portfolios during economic downturns.

The fund itself has trended pretty well over the past month, rising nearly 4% during that time.

Consumer staple companies tend to have strong balance sheets, stable cash flows, and consistent dividends. These characteristics can be attractive to investors seeking income and stability during uncertain times. Which is why, while the overall market is rising, value stocks are rising as well as investors prepare for a possible slowdown in the economy.

Many of the companies found in XLP are well-known, multinational brands, which gives them some insulation from economic downturns.

Many of these companies’ stocks such as Coca-Cola (KO), McDonalds (MCD), and Clorox (CLX) have performed well of late as investors have sought them out as safe-havens investments.

This leads to my one concern regarding the sector is many of these stocks are now trading at historically high valuations. But the nature of fund flows suggests money managers will continue to “hide-out” in these names until there is more clarity on the route of interest rates and the possibility of a recession.

Another defensive fund is the aptly named Invesco Dynamic Food & Beverage ETF (PBJ). This ETF tracks the performance of the Dynamic Food & Beverage Intellidex, which is an index of U.S.-traded stocks of food and beverage companies. PBJ has a low expense ratio of 0.63% and has outperformed the S&P 500 Index over the past 10 years.

Over the past month, PBJ has enjoyed a nice 3% gain as the market has pushed higher.

Another reason to consider PBJ is that while it is focused on food it is diversified in terms of market capitalization of its holding which range from large multinationals like KO and PepsiCo. (PEP) to smaller, more niche companies.

This is just one of the ways to safeguard your portfolio from the impending economic slowdown everyone is predicting. Aside from that, they are just quality stocks of companies that have been around for more than their fair share of rough economic cycles.

With Magnifi, you can even compare the individual stocks that make up these funds. For example, KO and PEP.

You could even compare the ETFs themselves to see which of them you would rather add to your Magnifi account.

These are just some of the tools Magnifi offers to set you on track to reach any of your financial goals. Goals like saving for college, retirement, or just how to save for a rainy day. Magnifi keeps you on point with it all to ensure you have a brighter financial future.

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