Hedging against a stock market crash is a pretty difficult task. Market crashes are usually irrational events, driven by panic selling. That makes it difficult to predict which shares will be spared in a crash, particularly a nasty one.
However, we can counter irrationality with rational logic. In a market crash, it is usually the companies that have the most robust earnings that fare the best, or at least whose stock prices recover the fastest.
So here are three ASX shares that I think would be a good way to hedge against the next stock market crash:
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3 ASX shares to hedge against a stock market crash
Newcrest Mining Ltd (ASX: NCM)
One sector that tends to thrive on panic and uncertainty is gold. Gold is the traditional safe haven asset, and its value often increases during times when fear is the primary emotion driving stock prices. We've seen this play out many times in history, including both during the COVID crash and before that, in the aftermath of the global financial crisis.
Newcrest is the largest gold miner on the ASX and, as such, is a prime candidate for using gold as a hedge in a share portfolio. As the price of gold rises, Newcrest becomes exponentially more profitable. With its long-life mines and industry-leading low costs, Newcrest is my choice in the ASX gold space.
CSL Ltd (ASX: CSL)
Healthcare is a sector that operates almost independently from the economy. As such, the earnings of healthcare shares tend to be far more resistant to economic shocks than other companies. CSL is the largest healthcare share on the ASX, by quite a large margin too.
This stock has a long history of delivering impressive returns for its shareholders and is now a global leader in both blood medicines and vaccines. The pandemic highlighted CSL's resilience as well as its importance in the Australian healthcare space.
Due to this inherent defensiveness, I think CSL is another great share to own if you are worried about a stock market crash. Most ASX investors recognise this company's quality, which is why its share price never seems to fall by too much. As such, I would be more than comfortable to own this healthcare giant, whatever the economic weather.
iShares Global Consumer Staples ETF (ASX: IXI)
Finally, let's check out an ASX exchange-traded fund (ETF) in the form of this consumer staples-focused investment. The iShares Global Consumer Staples ETF, as its name implies, holds only companies that dwell within the consumer staples sector. Consumer staples shares tend to produce or sell everyday essentials. These include food, drinks, household essentials, and vices such as alcohol and tobacco.
Much like healthcare, these products tend to be the last things to get cut from the family budget in times of economic stress, making the earnings of the companies that sell them highly defensive. This ETF holds stocks like Coca-Cola Company, Colgate-Palmolive, Diageo, Unilever, and Japan Tobacco.
Because of the central role these sorts of companies play in most of our lives, this is another investment that I think can outperform substantially during a stock market crash.
