With markets on edge due to rising economic uncertainty, investors may be looking for ways to protect their portfolios from excessive volatility.
While it is worth remembering that no investment is entirely risk-free, some sectors tend to be more resilient during downturns.
Two such sectors are consumer staples and healthcare, which are areas that people rely on regardless of economic conditions.
For Australian investors looking to add defensive exposure, two ASX exchange-traded funds (ETFs) could be worth considering. Let's take a closer look at them:
iShares Global Consumer Staples ETF (ASX: IXI)
Consumer staples are the everyday essentials—things like food, beverages, household products, and personal care items. These are the goods that people continue buying no matter what's happening in the economy, making them one of the most defensive sectors.
The iShares Global Consumer Staples ETF provides exposure to some of the world's biggest and most reliable consumer brands, including Nestlé, Procter & Gamble, Coca-Cola, and Unilever. These companies have strong pricing power, meaning they can pass on cost increases to consumers without significantly impacting demand.
During economic downturns, discretionary spending on luxury goods and travel often declines, but people still have to buy toothpaste, groceries, and cleaning products. This makes the consumer staples sector a relatively stable performer when markets are struggling.
iShares Global Healthcare ETF (ASX: IXJ)
Another sector that tends to hold up well during downturns is healthcare. No matter the state of the economy, people still require medical treatments, prescription drugs, and healthcare services.
The iShares Global Healthcare ETF gives investors exposure to some of the world's largest and most innovative healthcare companies.
Its holdings include Eli Lilly, Novo Nordisk, UnitedHealth Group, and Johnson & Johnson. Local players CSL Ltd (ASX: CSL) and Ramsay Health Care Ltd (ASX: RHC) are also held by the fund.
One of the key advantages of healthcare stocks is their long-term growth potential. The global population is ageing, and demand for medical treatments, pharmaceuticals, and biotech innovations continues to rise. This structural growth, combined with the defensive nature of the industry, could make healthcare a great sector to own during both bull and bear markets.
Foolish Takeaway
Market downturns can be somewhat unnerving for investors, but they also present opportunities to strengthen portfolios with defensive assets.
And while these ASX ETFs won't necessarily shoot higher during a downturn, their ability to hold value and recover quickly makes them attractive options for investors seeking stability in uncertain times.
