International Staples, Health Care Twist

By now, you are probably tired of all the analysis of last week's report pegging third-quarter GDP growth at 1.6%, which is a slowdown from second-quarter growth of 2.6%.

The net result is that the economic Armageddon guys still see the end of days and the no-recession-ever-again crew continues to say that a recession is nowhere near.

Regardless of where you stand on the issue, it is worthwhile to think about which segments of the market might weather a slowdown or recession better than others. The usual suspects include consumer staples, health care and dividend paying stocks.

WisdomTree offers a fund that includes all of the above, though only in international (non-U.S.) stocks, and it is worth considering: the WisdomTree International Consumer Non-Cyclical Fund (DPN - commentary - Cramer's Take).

This ETF is brand new, so all there is to go on are the back-test data. But during the last U.S. recession -- from late 2001 to early 2002 -- the index underlying this fund dramatically outperformed its benchmark index, the MSCI EAFE Index, as shown in the chart below.

One thing to point out right off the bat is that this is not your typical staples ETF. Most of the other funds that are dubbed "non-cyclical" or "staples" focus on things like Nilla Wafers and relish. In a twist, DPN throws health care stocks into the mix, a lot of health care.

In that regard, DPN partially overlaps with the WisdomTree International Health Care Sector Fund (DBR - commentary - Cramer's Take), but boasts a higher yield. The two funds have five of their respective top 10 stocks in common, and those five health care holdings account for almost 27% of DPN and nearly 40% of DBR: GlaxoSmithKline (GSK - commentary - Cramer's Take), Novartis (NVS - commentary - Cramer's Take), Sanofi-Aventis (SNY - commentary - Cramer's Take), AstraZeneca (AZN - commentary - Cramer's Take) and Roche.

Besting the Index

Click here for larger image.

Source: Morningstar

The weighting toward health care makes sense, because demand for medicine generally does not change during a recession. If you take medication for a heart ailment, the state of the economy usually will not alter that behavior. It is this steady demand for staples that creates demand for the staples stocks during economic downturns.

However, owning both of these funds is probably not a good idea.

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At the time of publication, Nusbaum was long HNZ, DEO and IYK as client holdings, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.