Global equity market returns were dismal in the first half of the year, as rising rates, high inflation, and the war in Ukraine made investors and analysts concerned about an impending recession. And many strategists fear that the second half won’t fare much better.
The S&P 500 closed out the first half of 2022 down 20.6% since the turn of the year, its largest first-half decline since 1970 last week, while the pan-European Stoxx 600 ended 1H22 down 16.6%, and the MSCI World dropped 18% during the same period.
In a daily research note issued to investors on Friday, Deutsche Bank’s head of global fundamental credit strategy Jim Reid wrote: “the good news is that H1 is now over, the bad news is that the outlook for H2 is not looking good.”
HSBC Asset Management advised investors in a midyear outlook reported by CNBC that the “economic regime appears to be shifting” as negative supply shocks persist, globalization slows, and commodity prices remain “secularly high.” HSBC’s global chief strategist, Joe Little, called the end of an era of what economists dubbed “secular stagnation.” Going forward, Little predicted persistent high inflation, increased interest rates, and more volatile economic cycles.
With analysts predicting a recession, investors looking to mitigate volatility while still targeting returns may want to consider funds like the Invesco Defensive Equity ETF (DEF). Based on the Invesco Defensive Equity Index, DEF looks to invest at least 80% of its assets in companies “that perform well during bearish market periods by analyzing valuation multiples, accounting practices, and dividend payments,” according to the analyst report on VettaFi’s ETF Database. “Given this objective, DEF probably doesn’t make much sense as a holding in a long-term portfolio, though it may be useful as a tactical play for those looking to scale back beta and volatility in anticipation of a bear market.”
The fund, which has an expense ratio of 0.53%, gives portfolios a tilt towards low beta industries, though the fund does allocate to all corners of the economy. Companies of all sizes are included in the underlying portfolio.
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