Defensive Equity strategies can be created using different investment approaches. Each can reduce downside risk, but they also introduce other risks.
Reviewing The Options
The stagflationary backdrop for equities is challenging. And investors are starting to feel the pain of negative YTD performance in their portfolios. Whilst the long term credo of 'stick to the plan' has historically been proven as the right thing to do, on this occasion fixed income markets do not have their back. In our investment research feeds last week, the #1 search query was "Defensive Equity Strategies".
Interestingly, the search results display asset managers pointing in different directions. What does defensive equity investing actually mean? There are several routes that investors can take.
In this market environment, you may need defensive equities. Here's what you need to know.
Several asset manager papers point to factor investing. And specifically the benefits of low-vol strategies that are de-sensitised to interest rate changes.
Others point to value investing which, in contrast to what most assume to be true, tend to be concentrated in more defensive industries. It's not all about financial and energy companies as many investors still may think!
The growth managers are also quick to respond. They argue that beyond the de-rated high growth companies, and the collapse of future expectations from the FAANG cohort, lie a wide body of highly profitable, high quality growth companies, that can weather all storms.
And finally there are the traditionalists. These asset managers argue that given the strength of many corporate balance sheets, dividend-focused investing provides the best of both worlds - a hedge that captures up-markets and provides a stable source of income in uncertain times.
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