Defensive shares as a buffer?
Geert Van Herck
Chief Strategist KEYPRIVATE
April 30, 2025
2 minutes to read
What can equity investors do in the current nervous stock market environment? In our opinion, the answer is quite simple. Diversify your portfolio! This will automatically reduce your risks.
We previously pointed out the advantages of geographical diversification to you. However, you can also spread an equity portfolio across different sectors to reduce your risks.
Graph 1 shows the relative performance of the US food and beverage sector (consumer staples) compared to the S&P 500, the benchmark index for the US stock market. The food and beverage sector is one of the most defensive sectors. In times of crisis or recession, consumers continue to spend money on food and drink.
It goes without saying that investors often seek protection in this sector when the economy is struggling or when stock market volatility is high. During the biggest stock market crises, this sector held up better than the broader market (the S&P 500).
During the dot-com bubble burst of 2000, the banking crisis of 2007 and the bear market of 2022, you can see a rising trend in graph 1. This simply means that this defensive sector performed better (or lost much less) than the broader market!
All World ex US vs S&P 500
Source: All Star Charts
Even during the most recent period of heightened nervousness, we saw that defensive food and beverage shares have held up well and have not fallen as sharply as several well-known technology shares.
We therefore believe that it would be wise to reserve some of a broadly diversified equity portfolio for this sector. This will allow you to build up your portfolio's level of defence should a storm suddenly appear.
During and after major stock market shocks, we often read analyses about how investors can protect themselves against these shocks.We believe it is better to be prepared. You can do this by diversifying geographically, but also by spreading your portfolio across different sectors.
Feel free to explore our trading platform to find trackers of food and beverage shares.
