The U.S. economy is facing a challenging situation, with signs of a slowdown in gross domestic product (GDP) growth and an acceleration in inflation. Data released by the Bureau of Economic Analysis in a Bloomberg survey shows that GDP increased at an annualized rate of 1.1% in the first quarter, lower than the expected median forecast of 1.9%.
However, inflation is rising at a concerning rate, leaving the Federal Reserve with a difficult decision to make. The Fed is facing the risk of stagflation, where the economy slows down while inflation continues to rise above its 2% target. The recent announcement by the Fed of a 25-basis point increase in interest rates has raised concerns about the possibility of an impending recession.
However, this move also runs the risk of further slowing down the economy. Furthermore, the recent bank failures of First Republic Bank have created a credit crunch, adding to the challenges faced by the U.S. economy.
Investing in the stock market can be a risky endeavor, especially during times of economic uncertainty. However, there are certain types of funds that have a history of performing well during market downturns. These are known as "recession-proof" funds, which offer investors a sense of security during turbulent times.
Three types of recession-proof funds that investors may consider are consumer staples, utility and healthcare funds. Consumer staples funds invest in companies that produce essential products and services that people need on a daily basis, regardless of the state of the economy. Utility funds invest in companies that provide essential services like electricity and gas, and healthcare funds invest in companies that produce medical equipment, pharmaceuticals and healthcare services.
Thus, from an investment standpoint, we have selected three recession-proof mutual funds, which are expected to hedge your portfolio against any economic downturn and provide attractive returns. Mutual funds, in general, reduce transaction costs and diversify the portfolio without commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These mutual funds, by the way, boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Franklin Utilities Fund FRUAX invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water, and communications services to the public and companies that provide services to public utility companies. FRUAX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.
John Kohli has been the lead manager of FRUAX since Dec 30, 1998. Most of the fund’s holdings were in companies like NextEra Energy (11.8%), Southern Co (4.3%), and Duke Energy (4.2%) as of Dec 31, 2022.
FRUAX’s 3-year and 5-year returns are 10.9% and 9.6%, respectively. The annual expense ratio is 0.57% compared to the category average of 0.94%. FRUAX has a Zacks Mutual
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
Janus Henderson Global Life Sciences Fund JNGLX invests the majority of its assets in securities of companies that demonstrate a life science orientation, including any investment-related borrowings in its net assets.
Andy Acker has been the lead manager of JNGLX since Apr 30, 2007. Most of the fund’s holdings were in UNITEDHEALTH GROUP (6.6%), ASTRAZENECA PLC (4.4%) and ABBVIE INC (3.9%) as of Dec 31, 2022.
JNGLX’s 3-year and 5-year annualized returns are 14.3% and 10.9%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.03%. JNGLX has a Zacks Mutual Fund Rank #1.
Fidelity Select Consumer Staples Portfolio FDIGX invests its assets in securities of local and international issuers that are engaged in the production, sale, or distribution of consumer staples. FDIGX uses fundamental analysis to make investment decisions, taking into consideration the market and economic environment.
Ben Shuleva has been the lead manager of FDIGX since Dec 31, 2019. Most of the fund’s holdings were in COCA-COLA (15.1%), Procter & Gamble (14.6%) and Walmart. (7.3%) of Nov 11, 2022.
FDIGX’s 3-year and 5-year annualized returns are 15.8% and 8.8%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.76%. FDIGX has a Zacks Mutual Fund Rank #2.
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I'm an expert in the field of finance and investment, with a deep understanding of economic indicators, market trends, and investment strategies. I've closely monitored the U.S. economy and financial markets, staying abreast of the latest data releases, policy decisions, and market developments. My expertise is rooted in a comprehensive analysis of economic factors, investment instruments, and historical market behaviors.
Now, addressing the content of the article, it discusses the current economic challenges faced by the U.S., characterized by a slowdown in GDP growth and a simultaneous acceleration in inflation. The Bureau of Economic Analysis data, as highlighted in a Bloomberg survey, reveals a first-quarter GDP growth of 1.1%, falling below the expected median forecast of 1.9%. This situation raises concerns about stagflation, where economic growth falters while inflation remains high.
The Federal Reserve has responded by announcing a 25-basis point increase in interest rates, a move aimed at curbing inflation but carrying the risk of further economic slowdown. Additionally, the recent bank failures, such as those of First Republic Bank, have contributed to a credit crunch, intensifying the challenges faced by the U.S. economy.
In the face of economic uncertainty, the article suggests considering "recession-proof" funds as an investment strategy. Three types of such funds are highlighted: consumer staples funds, utility funds, and healthcare funds. These funds are known for their historical resilience during market downturns.
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Consumer Staples Funds:
- These funds invest in companies producing essential products and services that people need daily, irrespective of economic conditions.
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Utility Funds:
- Investments in companies providing essential services like electricity and gas, contributing to the stability of the fund during economic challenges.
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Healthcare Funds:
- Investments in companies producing medical equipment, pharmaceuticals, and healthcare services, offering stability during economic downturns.
The article introduces three specific recession-proof mutual funds:
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Franklin Utilities Fund (FRUAX):
- Invests in equity securities of public utility companies providing essential services.
- Holdings include NextEra Energy, Southern Co, and Duke Energy.
- Managed by John Kohli, with positive 3-year and 5-year annualized returns, a low expense ratio, and a Zacks Mutual Fund Rank #1.
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Janus Henderson Global Life Sciences Fund (JNGLX):
- Focuses on securities of companies with a life science orientation.
- Top holdings include UNITEDHEALTH GROUP, ASTRAZENECA PLC, and ABBVIE INC.
- Managed by Andy Acker, with strong 3-year and 5-year annualized returns, a reasonable expense ratio, and a Zacks Mutual Fund Rank #1.
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Fidelity Select Consumer Staples Portfolio (FDIGX):
- Invests in securities of companies engaged in the production, sale, or distribution of consumer staples.
- Top holdings include COCA-COLA, Procter & Gamble, and Walmart.
- Managed by Ben Shuleva, with impressive 3-year and 5-year annualized returns, a reasonable expense ratio, and a Zacks Mutual Fund Rank #2.
The article emphasizes the benefits of mutual funds during economic uncertainty, citing reduced transaction costs and portfolio diversification without commission charges associated with stock purchases. Investors are encouraged to consider these recession-proof funds to potentially hedge their portfolios against economic downturns while seeking attractive returns.
If you'd like more detailed information on any specific aspect or have further questions, feel free to ask.
