Looking to steel your portfolio against recession? Here are the UK and US stocks that outperformed markets in recent downturns

With the Bank of England predicting the UK will fall into a five-quarter recession before Christmas and other economies around the world teetering on the edge of recession, we decided to look back at the UK and US stocks that outperformed the markets during previous downturns. From this we created two baskets, for UK and US stocks.

Losing less money is one thing; finding recession opportunities is another, but clearly, they exist. Many of the stocks we’ve picked have benefited in previous recessions from consumers trading down to cheaper products, saving money doing more of their own home and auto repairs, prioritising ‘low cost’ luxuries – from eating out to toys – and maintaining critical spending on healthcare.

Whilst past performance obviously can’t give us any promises for the future, looking at previous recessions and considering how consumers and businesses changed their purchasing behavior in response can help investors to make more informed decisions and fare better during these downturns.

Our ‘UK recession basket’ outperformed the FTSE 100 by 29% during the 2007-9 global financial crash and by 13% during the recent Covid period of the first half of 2020. 

The ‘US recession basket’ did even better in the global financial crisis, outperforming the S&P 500 by 41%, but only by 5% during the shorter-lived Covid downturn. 

Just as impressive is the ‘all-weather’ performance of both. The US recession stocks are up 833% since the eve of the global financial crisis through to the first half of 2022 versus ‘only’ 170% for the S&P 500 and 360% for the NASDAQ. Similarly, the UK stocks making up the recession basket are up 183% versus 15% for the FTSE 100, over the same period.

Table 1: Shows how TBanque’s recession baskets outperformed their local markets during the global financial crisis and the Covid crash

*Global financial crisis 01/01/2007 – 28/12/2009. Covid crash 30/12/2019 – 29/06/2020. Growth since 01/01/2007 – 04/07/2022. Price performance only. Excluding dividends.

Making up the UK basket are a number of ‘defensive stocks’, including pharmaceutical companies AstraZeneca and GlaxoSmithKline, and tobacco stocks British American Tobacco and Imperial Brands, both of which benefit from their market-leading dividend yields of over 7%. Consumer product and food stocks such as Unilever and Premier Foods are also included.

For the US basket, well represented segments include discount and low-price retailers such as Walmart, Ross Stores and Dollar Tree, with McDonalds also benefiting from consumers ‘trading down’. Similarly home DIY brands such as Home Depot, Lowe’s and auto repair parts stocks Autozone and O’Reilly are included.

Table 2: The stocks included in TBanque’s recession US and UK baskets