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3 ASX shares to buy for a recession proof portfolio

Tristan Harrison

Recessions are almost inevitable, so I can understand if you want to find ASX shares that might be recession proof, particularly with Australia looking a bit dicey at the moment.

It’s impossible to guarantee that any share is impervious to negative share price movements. A share price is simply what another buyer is willing to pay for the share.

However, I think there are some segments of the ASX that might be more insulated from a downturn than others. One way is to choose shares that generate their earnings from overseas, although recessions happen globally as well.

Industries like agricultural generally have little to do with the strength of the economy. Businesses that have a high level of underlying assets are worth particular attention.

I like the below three ideas for a recession proof portfolio because they lease to agricultural businesses, meaning they take on little of the operational risk that comes with farming:

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns farmland in a variety of categories including cotton, cattle, almonds, macadamias, poultry and vineyards.

The REIT has employed a successful strategy of re-investing some of its net income into improving its properties to generate higher rental income from tenants and improving productivity.

With rental increases linked to either CPI inflation or a fixed 2.5% rise, this REIT can continue to increase its distribution to shareholders each year and benefit from rising demand for Australian food over the longer-term.

Vitalharvest Freehold Trust (ASX: VTH)

This is another farmland REIT, although it is much newer to the ASX than Rural Runds. Currently, all of its properties are leased to Costa Group Holdings Ltd (ASX: CGC), although it plans to diversify away from Costa in the coming years.

It owns berry & citrus fruit farms and has a profit-share agreement with Costa, so now could be an opportune time to buy whilst Costa has suffered from a tough citrus season.

It’s currently trading at around its underlying net assets and is targeting a yield of around 8%.

Duxton Water Ltd (ASX: D2O)

Duxton Water owns water entitlements and leases them out. The idea is that shareholders will benefit from the growth in value of water and the income generated from the leasing.

The strategy is working well so far with a steadily-rising dividend and impressive growth of the asset value per share since inception.

Duxton Water is benefiting from the dry weather conditions that Australia is experiencing at the moment, although the best time to buy it could be during wet years.

Foolish takeaway

Each of these businesses have attributes that suggest they could weather a recession. At the current prices I’m most attracted to VitalHarvest because of its high yield and the fact it’s valued around the level of its assets, whereas Rural Funds is trading at a sizeable premium.

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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO, DUXTON FPO, and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and RURALFUNDS STAPLED. The Motley Fool Australia has recommended DUXTON FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019