May 2024

Equity and Fixed Income Strategy

Sometimes the Best Offense is Good Defense

Stéphane Rochon, CFA, Equity Strategist; Richard Belley, CFA, Fixed Income Analyst; Russ Visch, CMT, Technical Analyst; Eric Yoo, Associate; Ernad Sijercic, Associate

Defensive stocks serve an important purpose in portfolios, providing ballast in more volatile periods. We are referring to companies that are less exposed to economic fluctuations (particularly of the downward kind) and therefore have more visible and predictable revenue and earnings streams. While they tend to not go up as much in good times, these characteristics typically make them less vulnerable to market pullbacks. We believe it is the right time to look at them given “sticky inflation” and our technical expert’s call that the market is due for a minor correction over the next few months. We hasten to add that we still believe the long-term market trend is upward so all we are talking about here is a pause. Within the broad “defensive stock” category, we also include actual “Defense” or weapon manufacturing companies which are well positioned right now given the geopolitical context and rising global defense budgets combined with relatively low valuations. However, fully realizing that missiles and jet fighters may not be everyone’s investment cup of tea, we also point to other, more prosaic areas which could be interesting, including Consumer Staples, Healthcare, Pipelines, and traditional Utilities. The latter two sectors in particular should benefit once interest rates stabilize given expected significant increases in North American power demand (discussed below). Best of all, these sectors offer good value currently, making long-term capital appreciation prospects that much better.

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Do not hesitate to give either of us a call at 416 359-7565 or 416-359-7564 or email Sharon Kubicek or Alisa Carli if you have any questions respecting your portfolio and the prevailing investment, economic and political issues at play today.

Sharon and Alisa