There's been a lot of talk of a recession coming within the next 12 months as rising interest rates stifle economic growth.
Our most likely scenario is that the lagged impact of policy tightening over the past year, along with further modest tightening in the first half of 2023, soon leads to a notable slowing in global economic growth, such that the US in particular descends into outright recession,
In light of this, Bassanese has suggested that investors take a look at defensive options that could fare better in this environment. Here's what you need to know:
Global Healthcare ETF – Currency Hedged (ASX: DRUG)
The first ETF to look at is this global healthcare ETF. It provides investors with exposure to the largest global healthcare companies, hedged into Australian dollars. Bassanese notes that the largest global healthcare companies are predominantly pharmaceutical companies, which are often considered "defensive" by nature and can typically pass rising costs on to consumers.
Betashares Australian Quality ETF (ASX: AQLT)
Another option for investors to consider is the Betashares Australian Quality ETF. It aims to track an index that comprises 40 high-quality ASX shares. This includes companies such as CSL Limited (ASX: CSL) and Telstra Group Ltd (ASX: TLS).
Betashares Global Quality Leaders ETF (ASX: QLTY)
This is the international equivalent of the Betashares Australian Quality ETF. It gives investors exposure to a portfolio of approximately 150 global companies (excluding Australia). To be included in the ETF, a company needs to rank highly on four key metrics. These are return on equity, debt-to-capital, cash flow generation ability, and earnings stability. The ETF includes companies such as Alphabet, Microsoft, and Nvidia.
Bonds and cash
Three other ETFs that Bassanese is suggesting investors consider in the current environment have a focus on bonds and cash.
In respect to bonds, the chief economist notes that "market pricing suggests that rate cuts could be on the horizon. If markets are correct about this, and a US recession does occur, this could create favourable conditions for a rally in government bonds."
As a result, Bassanese has named U.S. Treasury Bond 20+ Year ETF – Currency Hedged (ASX: GGOV) and Australian Government Bond ETF (ASX: AGVT).
And if cash is more to your taste, then the Australian High Interest Cash ETF (ASX: AAA) could be worth considering.
This year has already presented many unexpected challenges for investors. Some, such as a potential US-led global recession, are already obvious and firmly in the sights of investors. Others – such as the recent spate of US bank failures – can catch investors off guard, remaining obscured until the very last moment. For investors who have positioned their portfolios appropriately, the impact might not be quite so severe.