The International Monetary Fund is warning about Australia’s growth, so I’m looking at shares that could protect against a recession.
Is Australian Growth Slowing?
The IMF has lowered the expected growth rate for Australia to just 1.7% according to reporting by the Australian Financial Review. The monetary organisation thinks that the world is facing a synchronised slowdown, so governments should collectively work to stimulate their economies.
Australia is unlikely to do this, at least in the near term, because the Morrison Government wants to reach and maintain a budget surplus. Plenty of economists and even RBA boss Dr Lowe thinks the Government needs to do something.
Yesterday we heard that Nick Scali Limited (ASX: NCK) is experiencing lower foot traffic at its stores, leading to lower sales and an expected lower profit for the December 2019 half.
That’s why I’m looking to buy shares of reliable businesses that could do well even in a potential Australian recession:
Magellan Global Trust (ASX: MGG)
This is an investment vehicle that invests in global shares, so it has very little exposure to the Australian economy. Magellan Financial Group Ltd
(ASX: MFG) has been one of the best Australian managers over the past decade.
There’s a good chance that performance could continue because Magellan only goes for the very best global businesses. But it doesn’t just invest in top American businesses like Alphabet, Apple, Visa and Mastercard, it also invests in non-US shares like Alibaba, Reckitt Benckiser, SAP and LVMH (Moët Hennessy – Louis Vuitton). They offer very different growth profiles.
The Magellan Global Trust has a track record of outperforming the global share market after fees over the long term and it’s currently trading at a slight discount to its underlying asset value.
Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is an agricultural real estate investment trust (REIT) that owns some of the largest citrus and berry properties in Australia.
I like that Vitalharvest is aiming to own only non-animal farms. This will hopefully benefit from multiple trends. There’s a trend for westerners to eat less meat (partly for environmental reasons) with a trend towards eating more healthy food instead and there’s a growing export market to Asia who want quality fresh Australian produce.
Vitalharvest earns a fixed 8% rental return on its farm properties and it also gets 25% of the underlying earnings of the farm too. So it’s not like a traditional REIT that only receives fixed rental income.
FY19 was a bit tough for its citrus and berry farms, so if that returns to an average year then the trailing FY19 distribution of 6.3% could go even higher.
But these aren’t the only two shares that could provide solid and different returns to the ASX. The reliable businesses in the free report below could also be excellent picks.
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Disclosure: Jaz owns shares of Vitalharvest Freehold Trust and Magellan Global Trust at the time of writing, but this could change at any time.
