Knowing what to buy during a bear market is very hard. All the assets decrease, even those considered safe haven like gold. In an increasing rate paradigm, the government bonds like the Us Treasury fall! Despite this global morosity, there are opportunities to catch if you remain on guard. In this post, I will present the two ETFs that I buy during a bear market.
What is an ETF?
ETF means “Exchange Trading Fund.” An ETF is a financial derivative allowing you to buy a basket of stocks at once. ETFs are regulated products by market authorities like SEC or ESMA. These financial products have been created for long-term investment purposes. You can trade them from any broker.
What should you consider before buying ETFs?
Numerous articles explain how to choose an ETF and what details to consider. Most of the time, these posts are focused on the annual fees or the performance regarding a benchmark.
I do not attach much importance to these details. What matters most is the composition of the ETF. I mean the included stocks and in what proportion. The second property I watch is the geographical exposure of the ETF. I want to know which countries most of ETF’s stocks are implanted.
The prudence rules to respect before buying a bear market
While in a bear or high volatile market, you should be particularly vigilant about the assets you own or wish to buy from a long-term perspective. When a market crash occurs, unhoped opportunities appear, but tolerating a significant latent loss is psychologically challenging. You should go cautiously on this.
The four following rules could help you to better invest:
- The first rule is not to open a too big entry once. It is better to progressively build a position.
- The second is to space your entry openings because we never know how many times the market will decrease.
- The third will be to choose defensive assets, meaning companies having solid fundamentals.
- The fourth rule is to favor low beta assets, which is often the case with defensive stocks.
For further information, I published the 10 rules for buying the dip safely post.
My two favorite ETFs I buy during a bear market
My two preferred ETFs are the only ones that correspond to the previous prudential rules. It is the “iShares STOXX Europe 600 Personal & Household Goods UCITS ETF (DE)” and the “iShares STOXX Europe 600 Food & Beverage UCITS ETF (DE)“.
Composition of the ETFs
iShares STOXX Europe 600 Personal & Household Goods
The Fund seeks to track the performance of an index composed of companies from the European Personal and Household Goods sector.
| Companies | Proportion |
|---|---|
| LVMH MOET HENNESSY LOUIS VUITT | 19,08% |
| UNILEVER PLC ORD | 13,42% |
| L OREAL S.A. | 9,87% |
| BRITISH AMERICAN TOBACCO ORD | 9,76% |
| CIE FINANCIERE RICHEMONT AG ZUG ORD | 6,78% |
| RECKITT BNCSR GRP ORD | 6,35% |
| HERMES INTL ORD | 4,92% |
| KERING SA | 4,31% |
| ADIDAS ORD | 3,94% |
| IMPERIAL BRANDS PLC ORD | 2,17% |
iShares STOXX Europe 600 Food & Beverage
The Fund seeks to track the performance of an index composed of companies from the European Food & Beverage sector.
| Compagnies | Proportion |
|---|---|
| NESTLE SA ORD | 29,82% |
| DIAGEO ORD | 15,78% |
| ANHEUSER-BUSCH INBEV SA/NV ORD | 8,84% |
| PERNOD-RICARD ORD | 7,23% |
| GROUPE DANONE ORD | 6,74% |
| KONINKLIJKE DSM ORD | 5,04% |
| HEINEKEN ORD | 4,04% |
| KERRY GROUP ORD | 2,97% |
| LINDT SPRUENGLI ORD | 2,24% |
| MOWI ASA ORD | 2,21% |
Geographical exposure of the ETFs
Here are the geographical exposures of the « iShares STOXX Europe 600 Personal & Household Goods » and the « iShares STOXX Europe 600 Food & Beverage » ETFs:
iShares STOXX Europe 600 Personal & Household Goods
| Countries | Proportion |
|---|---|
| France | 39,45% |
| Grande-Bretagne | 36,40% |
| Suisse | 7,61% |
| Allemagne | 7,56% |
iShares STOXX Europe 600 Food & Beverage
| Countries | Proportion |
|---|---|
| Pays-Bas | Proportion |
| Suisse | 34,18% |
| Grande-Bretagne | 18,30% |
| France | 14,72% |
| Pays-Bas | 11,01% |
A low beta for these two ETFs
Here is the beta of these two ETFs compared to the STOXX Europe 600 index. The following betas are calculated on the last five years:
| ETF | Beta 5Y |
|---|---|
| iShares STOXX Europe 600 Personal & Household Goods | 0,9 |
| iShares STOXX Europe 600 Food & Beverage | 0,7 |
Summary
I consider these two ETFs are the most adapted to build a long-term portfolio during a bear market. Most of the stocks that make up the « Europe 600 Personal & Household Goods » and the « Europe 600 Food & Beverage » are defensive values. They always survived the stock-market storms. The geographical exposure is distributed between the wealthiest European countries, which enhances security. The beta of both ETFs is lower than one, which reduces the risk. However, it would help if you always stayed prudent during a bear market. It would be best if you did not open a too big position. Nobody knows how much time a bear market will decrease.
Building a profitable long-term portfolio
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Mentioned assets:
https://artificall.com/ai/XETRA/EXH7.XETRA.php
https://artificall.com/ai/XETRA/EXH3.XETRA.php
Credit images:
https://www.pexels.com/photo/assorted-color-umbrellas-1486861/
https://www.pexels.com/photo/letter-tiles-arranged-in-text-stay-home-on-table-4200746/
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