When stocks go from setting all-time highs to tumbling 20% into a bear market in only three weeks, there are precious few places for equity investors to hide. But that doesn’t mean defensive, low-volatility stocks aren’t doing their jobs.
Investment professionals helping people construct a diversified portfolio always harp on the need for stocks that will hold up better in hard times. Well, hard times are here, and so it’s time to see exactly how much defense the top performing defensive stocks are actually providing.
We screened the S&P 500 for stocks in classically defensive sectors: consumer staples, utilities, health care and real estate. Next we limited ourselves to low-volatility stocks with a “beta” of less than 1.0. Beta is a measure of volatility that indicates how closely a stock’s price movement correlates with a benchmark.
For example, the S&P 500 has a beta of 1.0. Any stock that has a beta less than 1.0 can be said to be less volatile than the broader market. What this means in practice is that low-beta stocks tend to lag the broader market when stocks are going up, but – critically – they also hold up better when the S&P 500 is in decline.
Recent market carnage means it’s time for defensive, low-beta stocks to shine. Even if they lose value in a selloff, they should lose less value than the broader market. And if they have above-average dividends that further soften losses, all the better.
Have a look at the 12 best-performing low-volatility stocks in this market crash so far.