Hand-wringing about the next recession seems to be a common activity for those who invest in ASX shares. Most investors fear a recession, and the slump (or even crash) in share prices it can bring with it.
But in 2023, the risk of a recession does seem to be rising. For one, interest rates around the world, but particularly in the United States, have been steadily and steeply climbing over the past 12 months.
If you know anything about the history of recessions, you'll know that most are preceded by rising interest rates. Inflation continues to be a problem, and many investors are doubtful that the US Federal Reserve can pull off the fabled 'soft landing' of getting inflation down without sparking an economic downturn.
It's worth pointing out that at this stage, anything can still happen. We may see a recession later this year or in 2024, or 2025. It could be mild or severe. Or maybe we do pull off a soft landing and avoid one altogether. All scenarios are possible.
But let's assume one is coming for the American economy, which would inevitably drag the rest of the world down with it. Which ASX shares would be best placed to weather this storm?
5 ASX shares I would buy for an American recession
If I wished to protect my capital as much as possible in anticipation of a US recession, I would look to ASX's most defensive stocks.
That would start with Coles Group Ltd (ASX: COL). Coles, as the country's second-largest supermarket chain, is an inherently defensive company. No matter if there is a recession or not, we all have to eat and keep our households running.
With that in mind, Coles' earnings base is highly defensive, which means it is a great company to hold in all kinds of economic weather. Coles' hefty dividend would also come in handy, which the company kept raising during the pandemic.
In a similar vein, I would also look to Telstra Group Ltd (ASX: TLS). We all need to eat, but internet access is also something that most of us wouldn't want to give up either, no matter how tight the budget gets.
Telstra's position as the nation's most dominant telco makes this a very strong business, which makes it another great pick for a recessionary environment. Telstra has also shown that its hefty dividend is recession-proof in recent years too.
Transurban Group (ASX: TCL) is my third pick. This toll-road operator used to be known as one of the safest dividend payers on the ASX. COVID played havoc with that reputation for a few years. But I highly doubt the next economic downturn will have us all locked indoors for months on end.
As such, Transurban's toll roads should prove to be another inelastic and defensive source of earnings for the foreseeable future, no matter what is happening in the broader economy.
A focus on food, drinks and household items
Another investment I would turn to in order to protect an ASX share portfolio from a US recession is Rural Funds Group (ASX: RFF). Rural Funds is a real estate investment trust (REIT) that specialises in farms and food production assets. These include macadamia, cattle, and almond farms, as well as vineyards.
Again, the need to eat is not dependent on what the economy is doing, so I would feel very comfortable owning this investment in good times and bad. Right now, this REIT offers a dividend distribution yield of over 6%. Considering Rural Funds' ability to raise its dividend every year between 2019 and 2022, I consider it to be another recession-proof investment.
Finally, let's discuss the iShares Global Consumer Staples ETF (ASX: IXI). This exchange-traded fund (ETF) specialises in investing in consumer staples stocks.
Consumer staples shares are companies that produce or sell food, drinks and other household items (there's a bit of a theme here). But this ETF holds companies that are listed all around the world. Some of its top holdings include Coca-Cola Co, PepsiCo, Colgate-Palmolive and Philip Morris International.
I think that this ETF can add some much-needed diversification to a portfolio, given its global orientation. And given its defensive nature, it's my final pick for a recession-resistant portfolio.
