ETFs: defensive investments to withstand market downturns

The tariffs announced by Donald Trump last night are creating a climate of great uncertainty on most of the world's financial markets. And when you can no longer see what the future holds, it may be worthwhile to return to fundamentals, to traditional safe havens to reduce risk. Here are some of the ETFs concerned.

When risk and fear return to the markets, investors tend to favor defensive investments. Utilities, food, telecoms and healthcare come to mind. Why is this? Because in times of crisis, people continue to eat, treat themselves, use their telephones, drink water, and find housing... A specific article on sector changes after announcements made by the White House can be found here.

For healthcare: Vanguard Health Care ETF USD

The ETF is solely exposed to the United States (100% of assets), with Eli Lilly (11.95%) as its main weighting, followed by AbbVie (5.4%), Johnson & Johnson (4.8%) and Abbott Laboratories (3.9%). We also find health insurance companies, such as UnitedHealth (7%). 

A word of caution: although this sector has so far been spared by Donald Trump's tariffs, it was one of his potential targets. The future could be quite different, given the unpredictability of the American president's decisions.

ETF details:

ISIN:  US92204A5048

Ticker: VHT.IV

Management fees (TER): 0.09% Launch date: January 2004 Number of positions: 413 Assets under management: $19.8bn

For telecoms:SPDR S&P TELECOM ETF - USD

The ETF offers diversified exposure to 38 US telecom companies. Amongst them are less well-known companies such as AT+T Inc (4.85%), closely followed by Telephone and Data Systems Inc (4.69%). Then come a myriad of other sector players, such as Verizon Communications (4.67%) and Motorola Solutions (4.60%) - investments of course include many sector giants, such as Cisco Systems (4.13%) and Juniper Networks (4.31%); the list goes on...

The players mentioned operate in a complex sector, marked by minimal growth and intense competition, reinforced by the rise of digital players, while market consolidation does not appear to be an option in the short term. The advantage of telecoms companies therefore lies in returns to shareholders, mainly in the form of dividends. The above-mentioned ETF distributes coupons quarterly.

ETF details:

ISIN: US78464A5406

Ticker: XTL

Management fees (TER): 0.35% Launch date: January 2011 Number of positions: 36 Assets under management: $117.7m

For further information: Which-sectors-should-be-preferred-during-stockmarket-crises?

For food and beverage: iShares Emergent Food and AgTech Multisector ETF - USD

The ETF invests in around 30 companies (34 as of writing this article). Its largest investment (5.30%) is in International Paper, while bigger, household names, such as Danone (4.71%) and BASF (4.01%) also feature.

The iShares Emergent Food and AgTech Multisector ETF seeks to track the investment results of an index composed of companies from U.S. and non-U.S. markets that are expected to benefit from creating or using agricultural technologies or innovative food products or services.

In times of crisis, people continue to shop, eat and drink. However, not all the companies in this ETF are affected in the same way. It seems unlikely that consumers will maintain the same level of purchases for non-essential products (beers, spirits, chocolates, etc.) as for staples such as starches and vegetables. As a result, the above-mentioned players are not necessarily sheltered or equally impacted by a potential economic crisis. 

ETF details:

ISIN: US46436E3953

Ticker: MSGFOINU

Management fee (TER): 0.47% Launch date: April 2022 Number of positions: 33 Assets under management: €3.9m

For utilities: Vanguard Utilities ETF - USD

The Vanguard Utilities ETF, a US fund, employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Utilities 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the utilities sector, as classified under the Global Industry Classification Standard (GICS). The GICS utilities sector is made up of electric, gas, and water utility companies, as well as companies that operate as independent producers and/or distributors of power. The sector includes both nuclear and nonnuclear facilities.

Out of its 69 current investments, Nextera Energy (10.86%) comes top, followed by Southern Company (7.41%) and Duke Energy Corp. (6.83%).

ETF details:

ISIN: US92204A8760

Ticker: VPU.IV

Management fee (TER): 0.09% Launch date: January 2004 Number of positions: 69 Assets under management: $6.8bn

At the time of writing, the sectors mentioned were resisting well in a sharply declining market.