Counter-cyclical means moving against the economic (or business or market) cycle. For example, counter-cyclical business will make higher profits when the economy slows, and a counter-cyclical investment will rise when markets fall.

It is not difficult to think of examples of counter-cyclical businesses (accountants and lawyers specialising in insolvency and bankruptcy are an obvious example) but they are small and specialised.

Investors may look for similar diversification by investing in other asset classes with similar properties (such as gold). Given that there is a limited supply counter-cyclical equity investments that can be expected to maintain that behaviour during really bad conditions (i.e. a major crash).

The term counter-cyclical is not only used of investments, and not only from the perspective of investors. It is also used:

  • in discussions of economic policy (to describe policies and structures that counter-trends),
  • as a description of economic trends (such as employment), and
  • from the point of view of issuers (particularly sovereign issuers) to describe types of capital structured to become cheaper under adverse conditions.