Escalating conflict in the Middle East is driving up oil prices even as the U.S. labor market remains weak. This has prompted analysts to flag a renewed risk of a 1970s‑style bout of stagflation, a situation where economic growth weakens while inflation remains elevated.
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This article highlights three exchange-traded funds (ETFs) investors can bank on to pull through such a scenario. The funds are the iShares U.S. Healthcare ETF (IYH), the Utilities Select Sector SPDR Fund (XLU), and the Consumer Staples Select Sector SPDR Fund (XLP).
The ETFs are considered solid defensive assets due to their inelastic demand, even during periods of economic slowdown, as they are critical to everyday survival. The funds were selected for their Buy rating and significant upside potential.
The iShares U.S. Healthcare ETF (IYH)
IYH provides investors with exposure to the broad U.S. healthcare industry by spreading its portfolio across various types of companies, from pharmaceutical and medical device firms to biotech companies and healthcare service providers.
Although the ETF has fallen about 7% since the start of the year, it holds about 24% upside and has a Moderate Buy consensus rating from analysts. This comes with an average price target of $76.21 and breaks down to 85 Buys, 17 Holds, and one Sell assigned over the past three months.
The Utilities Select Sector SPDR Fund (XLU)
As the name suggests, XLU focuses on utility companies that provide electricity, water, natural gas, and wastewater services that are critical for economic productivity.
XLU has gained about 6% YTD and currently offers about 10% upside based on an average price target of $49.76. Analysts currently consider the ETF a Moderate Buy and have assigned 22 Buys and 10 Holds over the past three months.
Consumer Staples Select Sector SPDR Fund (XLP)
XLP targets another critical sector: consumer staples. This sector is where companies that produce everyday essential products and services such as food, beverages, household products, and personal items are active.
Analysts also consider XLP a Moderate Buy based on 24 Buys, 10 Holds, and three Sells issued over the past three months. However, the fund has risen about 5% since the start of the year and offers roughly 15% upside.
