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.
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
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
, 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:
Besting the Index
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.
Aside from the roughly 31% of its holdings exposed to health care, DPN has a lot of the high-yielding, big-cap names you would expect, such as
British American Tobacco
UK at the Helm
The UK takes the top allocation spot, with 41% of the fund's holdings coming from there. Switzerland is next, at 15.29%, followed by France with 13.64%. In all, the fund has holdings based in 20 countries.
Its goal of achieving high yield is one of DPN's -- and the entire WisdomTree family's -- main selling points. The fund yields 2.60%, which is much higher than some of the other well known staples and non-cyclical ETFs. For example,
The Consumer Staples Select Sector SPDR
yields 1.97%, the
Dow Jones U.S. Consumer Goods Sector Index Fund
yields 1.7% and the
Vanguard Consumer Staples ETF
The WisdomTree non-cyclical fund, like all the sector ETFs from the company, has an expense ratio of 0.58%, which is in line with other specialty -- meaning sector and foreign -- ETFs.
From a strategic standpoint, going 100% foreign (DPN owns no U.S. stocks) may not be ideal for every investor. There are plenty of U.S. staples stocks yielding more than 3% that could be owned in conjunction with DPN to create better diversity and a higher yield than is possible through holding DPN alone.
Some names to consider include
One last thing: There is almost no trading volume with the WisdomTree non-cyclical consumer fund. Many ETFs have very little volume, but that does not mean the markets can't handle orders. If you are interested in purchasing an ETF that is thinly traded, I suggest using limit orders and having a little patience. Often, but not always, a reasonable limit price between the bid and ask can get executed.
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;
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