What would a Recession mean for ETF’s?


ETF stands for Exchange traded fund which is basically an investment fund that deals with investment in stocks, tracking of stock indexes, commodities, bonds and other assets. Its mechanism is designed in such a way that it tries to keep the trading close to the net assets value. Tracking an index such as the stock index or bond index is what the ETFs do! Due to their low cost, tax efficiency and stock like features, ETFs are considered to be one of the best investment options in marketing industry. Other than that they also offer the benefits of lower transaction and management costs to the investors. ETF is a type of marketable security that has underlying assets like shares of stock, bonds, oil futures, gold bullion, and foreign currency. It then divides ownership of those assets accordingly into the respective shares. 

It is almost similar to a mutual fund except for one thing and that is it shares trade like common stock on an exchange. The prices of the shares of an ETF changes as they are bought and sold throughout the day. This makes it a more profitable option over mutual funds. Thus it is a more attractive option for all the investors out there. 

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Now due to the geopolitical tensions between two powerful countries US and China, a trade war seems to have originated. Thus many market analysts have been predicting about the recession in 2019.

But there are certain ways to tackle with this problem. And ETFs can help you in doing that. With the help of ETFs you can get so many opportunities to invest successfully in a market that has been turned down due to various reasons, one of them being recession. ETFs combine the features of both mutual fund and unit investment trust which trades throughout the day of trading at prices which are always close to the net access value i.e. either less or more than that.

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As the suggestions from CMG capital, to overcome the problem due to recession, it is a good approach to reduce the overall exposure to equities at the time of recession thus it utilizes a long or flat strategy so that they can do the risk control. And ETFs play a major role in helping investors to acquire the above strategy to fight against the recession. On comparing it to mutual funds, it was found that ETFs have higher average daily volume and comparatively lower fees. Thus ETFs allow the investors to have an access to different corners of the financial market offering low costs. (ETFs) offers ample opportunities for successful investment when the market has turned down.So although recessions may lead to the panicking of the investors, with the help of a proper strategy and planning one can easily withstand the downward pull of recession. Thus recession period can lead to earning profits in long duration of time when ETFs are taken into consideration. All one has to do is to plan carefully in such a way that it minimizes the risk effects and maximizes the potential profit.

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