Fears of a global recession are rising, and many investors are looking for safe places to put their money. Is the iShares Global Consumer Staples ETF (ASX: IXI) a safe bet?
What Are ETFs?
Exchange-traded funds or ETFs are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with one purchase.
This Rask Finance video explains ETFs:
iShares Global Consumer Staples ETF
The first action many people take when a recession hits is to cut their spending. This affects all businesses, but some expenses are harder to cut than others. While consumer discretionary spending is relatively simple to cut, consumer staples are, well, staples.
They are the sort of products that you need, recession or no recession, and it can be difficult to reduce spending in this category by any material amount. That’s why businesses in the consumer staples industry are often sought after in the lead up to, or during, a recession.
The iShares Global Consumer Staples ETF, or IXI ETF, is designed to make this easy. The ETF aims to track the performance of the S&P Global 1200 Consumer Staples Sector Capped Index.
It achieves this by investing in 110 holdings (companies and cash) including the likes of Nestle SA (SWX: NESN) and The Coca-Cola Company (NYSE: KO). Most of the companies are based in the US (51.21%) but the ETF covers nine countries in total.
All of the companies in the portfolio are classified as consumer staples companies. So, do they actually perform well during a recession?
Well, the ETF listed in 2006, shortly before the GFC. Since listing, IXI has returned 9.35% per year despite the S&P 500 falling around 50% during the recession. Over the last five years, returns have been even higher at 12.67% per year.
The above returns include dividends, which are paid semi-annually. The current trailing dividend yield is 2.02%.
Fees And Risks
The IXI ETF charges a management fee of 0.47%, higher than a lot of other index-tracking ETFs.
One obvious risk is the fact that all of the companies are consumer staples companies, and most are based in the US. This is an industry-specific ETF so it wouldn’t make a particularly good choice as the core of a portfolio.
While the ETF has performed well since 2006, there is no guarantee that it will continue to perform well in recessions, and in a downturn, you would still expect this ETF to fall.
My Take
The performance of this ETF is enticing and there are some high-quality names in the portfolio. I do see the management fee as a downside, but this is still an ETF worth considering if you’re concerned about the impact a recession would have on your portfolio.
For our number one ETF pick, have a look at the free report below.
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Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.
