Recession-Proof Your Portfolio

It endured a sharp correction in the spring as 10-year Treasury yields were moving higher. (Recent performance, however, has almost made up for that correction.)

Another liability is headline risk. Macquarie Bank, the trust's parent investment bank, is in the news a lot, as it has been actively trying to buy the London Stock Exchange and other high-profile assets. Any perceived success or failure could impact MIC.

I believe the Rydex currency exchange-traded funds (ETFs) also offer some value in this discussion. Both the Swiss Franc ETF, CurrencyShares Swiss Franc Trust(FXF Quote), and the Australian Dollar ETF, CurrencyShares Australian Dollar Trust(FXA Quote), could do well in the face of a U.S. recession.

The franc stands to benefit from some safe-haven demand. The Australian dollar could do well if short rates in the U.S. go down to stave off a recession. This would put more of a spotlight on the yield differential that favors the Aussie.

Also, neither Switzerland nor Australia relies heavily on exporting to the U.S. for economic success. FXF has a 0.034 correlation to the S&P 500, while FXA's correlation is 0.171. FXF yields just less than 1%, but rates are expected to go up in Switzerland, and FXA yields about 5.5%.

Call-Writing Funds Plan

From the closed-end fund (CEF) world, one might also consider the many call-writing funds, which buy stock and sell either covered calls or index options (calls and puts) to generate income. The idea is that these will be less volatile than the stock market, and less sensitive to interest rates than bond funds.

These funds have had their share of feast and famine. Given that the context is defense against U.S. recession, a call-writing fund that owns foreign stocks may be a better way to go. Here are three that have done well of late.

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Call-Writing Closed-End Funds These offer low correlation to the S&P 500
Name	Yield	Discount to Premium	Correlation to SPX	Correlation to Bonds*
Evergreen International Balanced (EBI)	8.93%	-0.81	0.095	0.046
Blackrock Global Opportunity (BOE)	8.75%	1.92%	0.23	0.011
ING Global Equity Dividend (IGD)	9.47%	2.76%	0.265	0.008
*bonds as measured by the Vanguard Long Term Bond Index Fund (VBLTX)

The Commodities Beat

An obvious idea would be gold, but I am trying to stay a little off the beaten path, so in the commodity complex is the iPath Dow Jones AIG Commodity Index ETN(DJP Quote).