9 Best ETFs to Buy for a Recession

Stock quotes may flash by on a screen like isolated numbers, but behind every price is a real business. Each one depends on the broader economy to generate sales, hire workers and grow profits.

In a strong economy, consumers tend to feel confident. They spend more on goods and services, which helps businesses grow their revenue. That revenue supports higher earnings, and with more profit, companies can return value to shareholders through dividends or share buybacks.

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As investors see this growth, they often bid stock prices higher. This is the typical cycle during an economic expansion, often summed up by the phrase “A rising tide lifts all boats.”

When the economy slows down, though, that cycle begins to reverse. If people lose jobs or worry about their finances, they tighten their budgets. That drop in consumer spending directly hits companies that rely on discretionary purchases, from restaurants and retailers to manufacturers.

With fewer sales, corporate earnings shrink. Companies may respond by cutting costs, which can mean layoffs or pulling back on capital expenditures. Stock prices usually fall as earnings disappoint, and investors get more cautious. Bonds of lower-rated companies might sell off too as credit risk rises.

“Some economists note two consecutive quarters of negative gross domestic product (GDP) growth as a potential indicator of a recession,” says Mark Andraos, partner and wealth advisor at Regency Wealth Management. “This, however, is not the official definition — the National Bureau of Economic Research takes into account several economic factors, including the depth and the duration of decline.”

While major recessions like the Great Recession of 2008 or the Great Depression had widespread and deep impacts, not all downturns are equally severe. Still, even milder recessions can rattle portfolios.

And with each downturn having different causes — housing bubbles, oil shocks, pandemics and so on — it’s easy to fall into the trap of “fighting the last battle,” preparing only for the type of recession we’ve already seen.

That’s why many smart investors build more resilient portfolios instead of trying to anticipate every possible risk. Instead of abandoning stocks altogether, they may focus on defensive sectors that tend to hold up better during downturns, like consumer staples or health care.

On the bond side, they might stick with high-quality issuers to limit default risk. Some even turn to alternative investments that use hedging strategies or seek returns less correlated to the business cycle.

Here’s a look at nine exchange-traded funds (ETFs) that could outperform during a recession:

ETF	Expense ratio
ProShares Short QQQ (ticker: PSQ)	0.95%
Vanguard Utilities ETF (VPU)	0.09%
Vanguard Health Care ETF (VHT)	0.09%
Vanguard Consumer Staples ETF (VDC)	0.09%
Invesco S&P 500 Low Volatility ETF (SPLV)	0.25%
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)	0.30%
Schwab Long-Term U.S. Treasury ETF (SCHQ)	0.03%
BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY)	0.125%
BondBloxx Bloomberg One Year Target Duration US Treasury ETF (XONE)	0.03%

ProShares Short QQQ (PSQ)

“Lower economic activity can lead to layoffs as companies try to control expenses in the face of fading revenue, while lesser demand paired with higher unemployment means lower sales,” says Dan Tolomay, chief investment officer at Trust Company of the South. “As economic activity slows, companies’ prospects dim, and stock prices follow downward.” As a result, ETFs that short the market could benefit.

One way to hedge against such a downturn is via inverse ETFs like PSQ, which seeks to deliver the inverse (-1x) of the Nasdaq-100’s daily return. Because the Nasdaq-100 is concentrated in technology stocks, it tends to be more sensitive to economic slowdowns. Recessions often impact growth assets severely due to their reliance on future cash flows, which get discounted more steeply in a risk-off environment.

Vanguard Utilities ETF (VPU)

“Utilities are considered defensive stocks because they operate in regulated markets, exhibit low price volatility and their services are essential, making them less vulnerable to economic downturns,” says Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors. Consumers usually cut down on discretionary spending before failing to pay their power or water bill.

Affordable exposure to the U.S. utility sector can be obtained by investing in VPU. This ETF tracks the MSCI US Investable Market Utilities 25/50 Index, which spans a portfolio of 69 regulated gas, electric, water and nuclear utilities across both generation and distribution companies. The ETF charges a low 0.09% expense ratio and pays an above-average 2.8% 30-day SEC yield.

Vanguard Health Care ETF (VHT)

“Many health care companies offer essential goods and services, from pharmaceuticals to medical devices, which are non-discretionary expenses for consumers,” Schulman explains. “The aging population in the U.S. (and most other developed countries) also contributes to sustained demand.” Vanguard’s low-cost sector ETF for health care is VHT, which also charges a 0.09% expense ratio.

Unlike some health care ETFs that target a specific niche, VHT takes a broad-based approach. It holds companies across the entire health care spectrum, which helps balance economically sensitive areas like biotech and pharmaceuticals with more stable segments such as medical devices, health insurance and health care services. This diversification helps smooth out performance across market cycles.

Vanguard Consumer Staples ETF (VDC)

“Consumer staples stocks tend to hold up better than cyclical or growth-dependent businesses during recessions because these companies sell products that people need regardless of the economic climate — think toilet paper, toothpaste, food and basic household items,” Schulman says. Many consumer staples companies also offer lower-price brands, which helps buoy sales during economically challenging times.

VDC provides broad exposure to 109 companies across the consumer staples sector, including firms in household products, beverages, food, bulk retail, tobacco and alcohol. An interesting detail: VDC shares 16 overlapping holdings with the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), which only includes blue-chip companies with at least 25 consecutive years of dividend growth.

[Read: 5 Good Stocks to Buy for the Second Half of 2025 and Beyond]

Invesco S&P 500 Low Volatility ETF (SPLV)

“SPLV owns the 100 stocks in the S&P 500 with the lowest one-year trailing volatility,” says Nick Kalivas, head of factor and core equity ETF product strategy at Invesco. “Stocks are weighted by the inverse of volatility, so the stocks with the lowest volatility receive the highest weight.” This ETF features a natural overweight to all three of the aforementioned defensive sectors, with utilities weighted the highest.

SPLV doesn’t hold a static portfolio. Instead, it is both rebalanced and reconstituted quarterly. Rebalancing means the fund adjusts weights to ensure that the lowest-volatility stocks remain most prominent. Reconstitution means the ETF re-evaluates the S&P 500 universe and swaps in new stocks that now meet the low-volatility criteria while removing those that no longer qualify.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

“SPHD selects the 50 stocks in the S&P 500 with the highest yield and lowest one-year trailing volatility,” Kalivas explains. “Stocks are weighted by dividend yield, and the holdings are subject to the constraint of no more than 10 names per sector, a sector cap of 25% and single-stock cap of 3%.” This ETF is more concentrated than SPLV with half the number of holdings, but pays a higher 4.7% 30-day SEC yield.

SPHD is still a defensive strategy, but not quite as conservative as SPLV. That’s because it starts by selecting the highest-yielding stocks in the S&P 500, then filters for the 50 with the lowest volatility among that high-yield group. So unlike SPLV, which purely targets low volatility, SPHD compromises a bit on quality in exchange for higher income and a slight tilt towards value stocks.

Schwab Long-Term U.S. Treasury ETF (SCHQ)

“Typically, during a recession, the Federal Reserve looks to cut interest rates to stimulate economic growth, as low interest rates encourage borrowing,” Andraos says. “In a falling-interest-rate environment, longer-duration bonds tend to outperform, as yields and bond prices are inversely related.” This mechanic makes long-term Treasury ETFs like SCHQ a potent recession hedge.

SCHQ tracks the Bloomberg US Long Treasury Index, which includes U.S. government bonds with remaining maturities greater than 10 years, averaging a duration of 14.4 years. While U.S. debt no longer holds a triple-A rating after Moody’s downgrade, it’s still widely considered among the safest investments. The ETF charges a low 0.03% expense ratio and currently pays a 5% 30-day SEC yield.

BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY)

“Investors anticipating an economic slowdown or recession should consider lengthening the duration of their portfolios with long-dated U.S. Treasurys,” explains JoAnne Bianco, partner and senior investment strategist at BondBloxx. “Our longest duration bond ETF, XTWY, would likely benefit the most in performance during a broad economic downturn.” This ETF charges a 0.125% expense ratio.

XTWY differs from SCHQ by tracking the Bloomberg US Treasury Twenty Year Duration Index. This gives XTWY even greater interest rate sensitivity, with a duration of 19.8 years compared to SCHQ’s broader Treasury exposure. It’s designed to offer a more precise benchmark for long-dated U.S. Treasurys, making it especially reactive to potential rate cuts. XTWY currently delivers a 4.8% 30-day SEC yield.

BondBloxx Bloomberg One Year Target Duration US Treasury ETF (XONE)

“The U.S. financial markets are signaling an increased risk of an economic downturn due to Trump’s tariff rollouts and federal workforce actions,” Bianco argues. “Market sentiment has shifted from economic growth and a possible reacceleration in inflation to fears of a material slowdown.” If inflation coincides with a recession, long-term Treasury bonds may lose their effectiveness as they did in 2022.

For a stagflationary scenario, a short-term Treasury bond ETF like XONE may be more resilient. It tracks the Bloomberg US Treasury One Year Duration Index, with roughly half the portfolio maturing in under a year and the other half between one and two years. This minimal duration means price volatility is low. XONE delivers a 4.1% 30-day SEC yield, putting it in line with many money market mutual funds.

[READ: 7 Best Long-Term ETFs to Buy and Hold]

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9 Best ETFs to Buy for a Recession originally appeared on usnews.com

Update 07/15/25: This story was previously published at an earlier date and has been updated with new information.