Best 3 ETFs to Buy in a Recession 2023

Recession fears are swirling. And that means investors are worried about bear markets.

There are three sectors that tend to outperform when the S&P 500 declines 20% or more: Staples, Healthcare, and Utilities.

When times get tough, investors flock to steady, defensive areas of the market. Let’s zero in on 3 ETFs that can outperform if markets hit the bear market.

Consumer Staples Select Sector SPDR Fund (XLP) Analysis

First is the Consumer Staples ETF (XLP). The fund is packed with everyday companies consumers have grown to love. Below is a 1-year chart of XLP with big volume buy and sell signals.

It’s been choppy in 2022, but it managed to only fall .83% last year compared to the S&P 500 (SPY ETF) falling just over 18%.

XLP offers an attractive forward dividend yield of 2.68%. One attractive holding in the ETF is the iconic beverage company Coca-Cola (KO). It sports a 3% dividend yield and makes up 10.3% of XLP.

Health Care Select Sector SPDR Fund (XLV) Analysis

The next area that can thrive in a recession is the Health Care space. The defensive nature makes it a great allocation for investors concerned about the spending habits of the consumer.

The Health Care Select SPDR Fund (XLV) offers a forward dividend yield of 1.68% and is an easy way to get broad-based healthcare exposure. Recently the fund has been gaining in price as volumes surged – indicative of institutional support.

A top holding (8.91%) in the ETF is pharmaceutical giant Johnson & Johnson (JNJ). The company has a rich history of dividend growth and currently sports a forward dividend yield of 2.77%. Also, the stock has been under accumulation recently.

Utilities Select Sector SPDR Fund (XLU) Analysis

Then there’s the high-yielding utilities sector that can offer stability in a recession. Consumers tend to keep the lights on regardless of what’s happening in the economy.

A great way to get exposure to the group is with the Utilities Select Sector SPDR Fund ETF (XLU). The fund offers a 3.12% forward dividend yield, and has recently seen accumulation activity recently.

Inside the ETF is Duke Energy Corp. (DUK) with a 7.8% weighting. The power company has an attractive forward yield of 4.05% and also has seen buy activity in the shares:

Bottom Line and Explanatory Video

XLP, XLV, & XLU represent top recession ETFs in 2023 in my opinion. History suggests these sectors can outperform in bear markets. Healthy dividend yields and strong underlying businesses in the funds can mean ballast for a defensive portfolio.

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Disclosure: As of the time of this writing, the author holds no positions in XLP, XLV, XLU, KO, JNJ, or DUK at the time of this writing.