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Top fund manager names 12 ASX shares for a recession proof portfolio

Leading fund manager Steve Johnson from Forager Australian Shares Fund (ASX: FOR) has named a portfolio of 12 ASX shares that could be a recession proof and property proof.

He published an article for Livewire musing there are three groups of shares to consider. The first are ones where the share prices and business models are under threat, with shares like Retail Food Group Limited (ASX: RFG), iSentia Group Ltd (ASX: ISD) and AMP Limited (ASX: AMP). He cautioned these businesses may do even worse during a recession.

The next group contains banks, consumer discretionary shares and anything property related. He said these businesses look cheap on a historical earnings basis, but earnings are likely to fall in the short-to-medium-term.

The final group contains businesses that should be fine but are expensive compared to the rest.

Mr Johnson thinks the housing downturn has only just started, so the wider economic effects are yet to be felt.

He has chosen 12 ASX50 shares, but excluded Wesfarmers Ltd (ASX: WES) and Transurban Group (ASX: TCL). Wesfarmers is too reliant on Bunnings and toll roads may not be as defensive as people think.

The 12 ASX50 shares he went for were:

Amcor Limited (ASX: AMC) and Aristocrat Leisure Limited (ASX: ALL) for their overseas earnings which could benefit from a low Australia dollar.

Woolworths Group Ltd (ASX: WOW) and Ramsay Health Care Limited (ASX: RHC) for the defensive nature of their industries.

BHP Group Ltd (ASX: BHP) and Aurizon Holdings Ltd (ASX: AZJ), he said they’re reasonably priced with attractive yields, although the exposure to China raises the risk profile.

Two other resource plays, one being Woodside Petroleum Limited (ASX: WPL) with a belief that the oil price will be higher over the next few years. Global inflation is returning, which could make Newcrest Mining Limited (ASX: NCM) a decent idea for protection insurance.

The healthcare giants of CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) have seen pullbacks to make them better valued, Mr Johnson said they’re wonderful businesses.

His final two picks were Computershare Limited (ASX: CPU) and Insurance Australia Group Ltd (ASX: IAG) for their reasonable valuations and decent yields.

Overall, this portfolio if equally weighted has an average yield of 3.3% and a forward price/earnings ratio of just under 20.

Foolish takeaway

Mr Johnson thinks this portfolio could generate returns of 7% to 8% per annum over a long period of time. It may also allow you to sleep easily at night, which may be hard for some in 2019.

If I were to narrow the choices down to a list of five, my picks would be CSL, Cochlear, Amcor, Aristocrat and Ramsay. I generally avoid all resource businesses. Ramsay makes my cut because of the ageing tailwinds, but Woolworths is trading too expensively for its likely long-term growth rate.

Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group and Wesfarmers Limited. The Motley Fool Australia owns shares of Insurance Australia Group Limited. The Motley Fool Australia has recommended Cochlear Ltd., Computershare, iSentia Group Ltd, and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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