Investors concerned about the potential for a recession next year might find the Vanguard Consumer Staples Index Fund ETF (NYSE Arca:VDC) an attractive option. This exchange-traded fund (ETF) holds shares of companies that produce and distribute essential goods and services. These are products that consumers continue to purchase regardless of economic conditions, making the sector less sensitive to economic cycles.
During a recession, consumer spending typically declines as people cut back on discretionary purchases like luxury items and vacations. However, spending on essential items—such as groceries, household products, and personal care items—remains relatively stable. This stability is why consumer staples companies are often seen as defensive investments during economic downturns.
The Vanguard Consumer Staples ETF includes 105 stocks. Major holdings include well-known and financially strong companies like Procter & Gamble (NYSE:PG), Costco Wholesale (NASDAQ:COST), and Walmart (NYSE: WMT). These companies have a long history of steady performance, even in challenging economic environments, which can provide a buffer against broader market volatility.
The fund’s expense ratio is just 0.10%, which means that investors can keep more of their returns. Lower fees are particularly important in a challenging market environment where every basis point of return counts.
The ETF covers a wide range of sub-sectors within consumer staples, including consumer staples merchandise retail (24.6%), household products (18.4%), soft drinks and non-alcoholic beverages (17.9%), and packaged foods and meats (14.3%). This diversification across different industries within the consumer staples sector can help mitigate risks associated with any single industry.
While no investment is entirely recession-proof, the consistent demand for consumer staples products makes this ETF a solid choice for those seeking to add some safety to their portfolios.
