ETF News

World economies continue to falter, with now the Bank of Canada also believing we could be nearing a recession in Canada in 2023. Economist David Doyle, head of economics at Macquarie Group, said in an interview with BNN Bloomberg, Canada should not only enter a recession, but a “severe” one.

“I don’t think we’re in a recession just yet, but I do think that one is on the horizon,” Doyle said during the interview. “Our baseline is that Canada will enter a recession in the first quarter of 2023.”

With that in mind, what steps can an investor take to position their investment portfolio to provide protection during a recession? Here are a few exchange-traded funds (ETFs) to consider for that potential eventuality.

BMO Equal Weight Utilities Index

Utilities have long been considered a great way to ride out a recession storm. Supported by necessity, utilities remain essential services even during a recession, thanks to long-term contracts.

For investors looking to gain access to utilities stocks, one ETF to consider is the BMO Equal Weight Utilities Index ETF (ZUT). This ETF invests solely in Canadian utilities stocks, providing dividends as well to investment holders. It currently trades down about 5% year-to-date as of writing, which beats the TSX, which remains down by about 9% year-to-date.

The ETF has a net asset value (NAV) of CA$23.27, with a management expense ratio (MER) of 0.61%. It’s done well during the past downturns of the last few years, bouncing back to pre-fall prices almost immediately even after the fall in April 2020.

iShares Global Infrastructure Index ETF

The iShares Global Infrastructure Index ETF (CIF) follows the same method of investing in essential services. Here, it expands beyond Canadian borders, as well as utilities. CIF instead invests in utilities, energy and industrials - all part of the essential services we use every day, but on a global scale.

CIF currently has a CA$33.24 NAV, and a 0.73% MER. Whether it’s the diversification of assets or global coverage, CIF has done well in 2022. In fact, shares are currently up about 6% year-to-date. Now, when it fell during the pandemic this diversification did mean it took longer to recover. However, it remained a top performer coming out of the Great Recession in 2009.

iShares S&P/TSX Capped Consumer Staples Index ETF

There are staples that remain outside infrastructure, as we continue to need to consume certain products as well. Consumer staples include items such as food and beverages, as well as household products.

This is what makes iShares S&P/TSX Capped Consumer Staples Index ETF (XST) an interesting buy today. The sector tends to suffer lower losses during recessions, allowing for a quicker bounce back. That seems to have been the case with XST, as well as the companies it invests in. 

XST currently offers a NAV of CA$80.66, so it’s a touch overpriced. But that also comes with better performance, with shares up by 5.6% year-to-date, and an MER at 0.61%. Most of its investments lie in consumer defensive, with additional holdings in consumer cyclical. Its top holdings include Alimentation Couche-Tard, Loblaw and Metro.

BMO Global Consumer Staples Hedged to CAD Index ETF

Another consumer staples ETF to consider is BMO Global Consumer Staples Hedged to CAD Index ETF (STPL). In this case, we get similar performance from consumer staples, but with a more global outlook. It can be incredibly beneficial to have this diversification during a recession.

This strategy creates a low-risk, high-yield performance for STPL investors. A whopping 91% of its portfolio holdings lie in consumer defensive stocks, with most of the remainder in healthcare companies. So instead of looking to Canadian companies, you’ll see STPL top holdings as Coca-Cola, Nestle and Procter & Gamble.

Because of the heavy investment in the United States, shares are down 4.5% year-to-date. But as the U.S. tends to rebound quicker than Canada after a recession, this could end up being a strong opportunity for a long-term investment. Plus, it offers a cheap MER at 0.40%, and NAV at CA$23.05.

Disclaimer: This article is limited to the dissemination of general information pertaining to investment strategies and financial planning and does not constitute an offer to issue or sell, or a solicitation of an offer to subscribe, buy, or acquire an interest in, any securities, financial instruments or other services, nor does it constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment.