Recession-Proof Your Portfolio

Telecom -- 3.67%: Telecom breaks into two bigger subsectors -- equipment makers and the Ma Bell type of companies. I would want to be overweight the Ma Bells for their yield and would want foreign exposure. A lot of big foreign phone companies have their business at home, plus they have meaningful footprints in emerging markets. This provides a little growth, and most of them offer a lot of yield.

Utilities -- 3.47%: If interest rates come down, that should help utilities. If the economy slows down, that implies less demand for electricity, which hurts utilities. In weighing the two, I am inclined to want to be overweight for the yield and the low volatility; I believe stocks like Consolidated Edison (ED) are a good way to get exposure.

Materials -- 3.08%: History says to underweight this group, and I'll agree on the chemical stocks, but the emerging market ascendancy theme embedded into the natural-resources stocks leaves me choosing to overweight that part of the materials sector.

A few of the names here have some good yield and a lot of the names are foreign. A foreign miner selling some sort of ore to China probably doesn't have much of a fundamental link to a U.S. slowdown.

Consistent with a slowdown is lower rates, which usually weaken the dollar. Some exposure to foreign currencies and bonds also makes sense. Some commodity exposure could also help offset a decline in equities that should be expected in a recession.

From 30,000 feet, the idea is to reduce volatility, increase yield and reduce net long exposure a little. Be careful with that last one, though. Markets tend to go up very quickly off the bottom. Too little exposure when the market turns will lead to a bad result.

Instead of selling a lot of stock, my preference is to add leveraged inverse index funds to neutralize some of the long exposure, which you can read more about here and here.

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