Will Australia enter a recession? That's the big question, with the budget still out of control, consumer confidence persistently low, and the general economy slowing down.
There's no clear answer, but if Australia did enter a recession, investors will want to avoid stocks exposed to consumer discretionary spending, employment and housing activity like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Ltd (ASX: HVN).
Instead, investors will want to prioritise exposure to foreign (healthier) currencies and economies, as well as less labour-intensive industries. Here are three stocks I would buy to see me through Australia's next recession:
Westfield Corp Ltd (ASX: WFD) – USD/GBP/EUR exposure, yields 4.5% unfranked in USD
Westfield Corp will be familiar to most Australians as the company behind the iconic Westfield brand – even though Westfield Corp doesn't operate domestically anymore. Management focusses on buying 'flagship stores' at iconic locations such as its 'World Trade Centre' mall in the US and using these key locations to attract premier stores and leverage faster sales and rental growth over the long term.
Although Westfield earns most of its money in US dollars presently, the portfolio is expected to become more evenly weighted between the US, UK, and Eurozone. The fantastic locations of its centres combined with premier tenants is likely to keep the performance of these locations well above other malls, and the foreign currency exposure makes Westfield an attractive option in the event of an Australian (not global) recession.
ISGLHLTCA CDI 1:1 (ASX: IXJ) – yields just under 1% in USD
That letter salad stands for the iShares Global Healthcare ETF (ASX: IXJ) which is an Exchange Traded Fund (ETF) that purportedly delivers exposure to the global healthcare market. It does this to a degree, but is heavily weighted to US shares (64%) followed by Switzerland (11.6%), the UK (6%), Germany (4%), and Japan (4%). Australian equities comprise 1% of the ETF.
The majority of stocks are in the Pharmaceutical, Biotechnology, and Life Sciences industry (63%) followed by Health Care Equipment and Services (23%). This ETF has returned an average of 4.5% per annum (excluding dividends) since inception in 2001, and 9.5% in the past 10 years. I would assume mid-single digit returns going forwards.
Alternatively, investors might find the more evenly weighted and higher yielding ISGLOTEL CDI 1:1 (ASX: IXP), also known as the iShares Global Telecom ETF. This ETF is exposed to the USA (36%), UK (12%) and Japan (10%), followed by Canada (5%), China (5%), and Germany (5%). Three-quarters (76%) of funds are allocated to Diversified Telecom Services while 23% is allocated to Wireless Telecom Services.
This ETF returned an average of 7% p.a. over the past 10 years, or 2.5% since inception in 2001. With the demand for data to continue growing unabated – especially in emerging economies – I expect future returns to be closer to the 10-year returns than to its returns since inception.
Telecom and Healthcare services are attractive sectors to be in during a recession as they offer growth and recurring earnings at a time when 'traditional' defensive stocks (like utilities and grocers) won't necessarily perform so well. Every investor should consider increasing their overseas exposure as well as adding an ETF or two to their portfolio in the event of an Australian recession.
