Follow Buffett-Style ETF Investing as U.S. Recession Likely
As fears of a looming recession in the United States persist, investors may be gainful if they turn to defensive stocks and value investing. In this regard, many are looking to the legendary investor Warren Buffett for guidance.
According to a recent Markets Live Pulse survey, as quoted on Bloomberg, more than half of respondents believe that Berkshire Hathaway Inc.'s shares will outperform the US market over the next five years, thanks to Buffett's renowned investing prowess.
Buffett's investment philosophy, which is based on buying stocks for less than what they are worth, is likely to pay off during a recession. Buffett's famous letters to shareholders are eagerly awaited by investors for insights into his investment strategy.
Professional investors remain confident in Buffett's ability to outperform the market, with almost two-thirds of respondents believing that a Buffett premium is reflected in Berkshire Hathaway's share price. History has shown that this faith is not misplaced, as Berkshire Hathaway's shares returned a compounded annual 9.5% through the first quarter from the turn of the millennium, outperforming the S&P's 6.5% return.
Inflation, Recession, and the Constant Threat to Economies
In the face of inflation and recession, investors should focus on resilient and financially strong companies that have pricing power and can weather economic storms. One can diversify the portfolio with assets that perform well during economic downturns, such as consumer staples, utilities, and fixed-income investments. VanEck Morningstar Wide Moat ETF MOAT, Utilities Select Sector SPDR ETF XLU, iShares TIPS Bond ETF TIP can be played in this regard.
Defensive ETFs to Play
Survey respondents hold the view that defensive stocks will perform better than technology stocks in the upcoming months as the latter has still-higher valuation. AGFiQ US Market Neutral Anti-Beta Fund BTAL and KFA Mount Lucas Index Strategy ETF KMLM could be winning options if recession hits.
Bet on Japan
Buffett's recent visit to Japan has also attracted attention from investors as Japanese stocks offer value. The Bank of Japan's yield curve control policy has enabled Japanese stocks to enjoy low borrowing costs, resulting in a prospective earnings yield of 5.8%, compared to about 5.3% on the S&P. This could make Japanese stocks a viable alternative to US stocks, especially in the face of a looming recession. iShares Currency Hedged MSCI Japan ETF HEWJ and Franklin FTSE Japan Hedged ETF FLJH have a P/E of 12.72X and 13.54X, respectively.
Cryptocurrency: A Gamble or an Investment?
Buffett doesn’t seem to be a fan of cryptocurrency. Hence, one should avoid investments in assets with no intrinsic value, such as cryptocurrencies, and focus on assets that provide stable returns. ProShares Short Bitcoin Strategy ETF BITI can come across as a useful trick in such case.
Bank Failures and Buffett's Views on the Banking Sector
Be cautious when investing in banks, especially those that deviate from basic banking principles or engage in risky practices. Instead, one should focus on well-capitalized banks with strong risk management. Big banks are good bets in this regard. Regional banking stocks are under stress currently. One can stay out of SPDR S&P Regional Banking ETF KRE at the current level.
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iShares TIPS Bond ETF (TIP): ETF Research Reports
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
ProShares Short Bitcoin Strategy ETF (BITI): ETF Research Reports
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
VanEck Morningstar Wide Moat ETF (MOAT): ETF Research Reports
iShares Currency Hedged MSCI Japan ETF (HEWJ): ETF Research Reports
AGF U.S. Market Neutral Anti-Beta Fund (BTAL): ETF Research Reports
Franklin FTSE Japan Hedged ETF (FLJH): ETF Research Reports
KFA Mount Lucas Managed Future (KMLM): ETF Research Reports
