These Are the Top Ten Consumer Defensive Funds - Cod. #


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People depend on gas, electricity, water, and other utilities in daily life. Utility stocks include companies that provide or deliver these services. They are defensive because consumers still need them during an economic decline. This fact makes the prices of defensive utility stock funds less sensitive to market fluctuations. Vanguard Utilities ETF (VPU) is an example of this kind of defensive sector fund.

The companies tend to hold up well in response to inflationary pressures, because they pass higher costs straight through to customers. And as domestic businesses, they don’t face the headwinds of a strong dollar that many other sectors currently face. The purchase of consumer discretionary products is often compared with the purchase of consumer staples.

  1. The demand for consumer discretionary stocks normally increases or decreases as the economy grows or weakens.
  2. The services segment includes hotels, restaurants and leisure facilities, media production and related services, and consumer retailing and services.
  3. Despite inflationary headwinds and challenges in the beef and pork segments, we don’t see any structural changes to meat markets that warrant a permanent change to profitability.
  4. This fact makes the prices of defensive utility stock funds less sensitive to market fluctuations.
  5. Higher interest rates also lured many investors toward fixed income and away from dividend-paying stocks.

Most recently, the company reported a dividend yield of 4.0%, which has decreased by 0.48% from last quarter’s yield of 4.48%. For the consumer discretionary sector, State Street Global Advisors (SSGA) offers one of the market’s top options. When an economy is growing, many sectors see stock values increase and this can make equities attractive. The higher values are due to increasing profits and more discretionary consumer income. Whether you want to invest in consumer staples stocks or ETFs, Syfe enables you to do so easily and affordably.

They also alleviate fear because they are not as risky as regular stocks, and it usually takes a significant catastrophe to derail their business model. Investors also need to be aware that most investment managers have no choice but to own stocks. If they think times are going to be harder than usual, they will migrate toward defensive stocks.

The consumer staples sector encompasses makers of everyday items like packaged food, toothpaste, and dish detergent. It’s considered to be a “defensive” sector because consumers tend to still buy such products even when times are tight, and because it includes many mature dividend-paying companies. The term “consumer discretionary” refers to non-essential products and services that consumers tend to purchase when the economy is strong, consumer confidence is positive, and individuals have discretionary income to spend.

Shares of major pharmaceutical companies and medical device makers have historically been considered defensive stocks. However, increased competition from new drugs and uncertainty surrounding regulations mean that they aren’t as defensive as they once were. As any experienced investor knows, there’s no single investment type that performs best across all market environments.

Healthcare Stocks

Unfortunately, many investors abandon defensive stocks out of frustration with underperformance late in a bull market, when they really need them most. After a downturn in the market, investors sometimes rush into defensive stocks, even though it is too late. These failed attempts at market timing using defensive stocks can significantly lower the rate of return for investors. Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks. Defensive stocks as a group have a higher Sharpe ratio than the stock market as a whole.

Cyclical vs. Defensive: What We Learned from 2020

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Brand-name soda makers may have the ability to retain or raise prices, because they face little competition from lower-cost, generic alternatives. For example, soft drink companies Coca-Cola (), Keurig Dr Pepper (), and PepsiCo () have generally experienced strong pricing power due to a lack of competitive private-label alternatives. RYPDX usually invests in equity securities of U.S.-traded Consumer Products Companies, as well as in derivatives. RYPDX has given a return of 8.81% over the past three years, and 6.44% over the past five years.

Understanding Defensive Stocks, Pros & Cons, Examples

Interest rates can be an interesting metric to follow during all types of economic cycles. In general, interest rates rise in growth phases and fall during contractions. The level of interest rates is important for companies that tap the credit markets trading the ftse 100 for business funding. U.S. monetary policy usually seeks to lower interest rates in contractionary phases to provide a business stimulus. The consumer confidence indicator can shed light on future consumption and saving behaviors of households.

There will be times when tech, energy, growth, and value stocks each takes the lead, and times when each of these sectors and styles lags. Secondarily, too, we also started to see some cracks in the overall U.S. consumer as well, particularly among the lower- to middle-income consumer that remains extremely cash strapped and looking to stretch household budgets at the same time. So some potential downside guidance as well that led to some of the pressures in the space.

Consumer Discretionary ETFs

Many dividend aristocrats – companies that have increased their dividends each year for at least 25 consecutive years – are part of the consumer staples sector. Whether we’re in a recession or a boom market, we’ll always need products like shampoo and toilet paper. As such, the companies that make these items are said to maintain reliable, steady growth regardless of the economy. On the flip side, the generally slow growth of defensive stocks often leads to smaller gains during a bull market. When other stocks are soaring, defensive stocks are more likely to perform below the market. Defensive stocks tend to perform better than the broader market during recessions.

You can buy the stocks of companies found in the various industries within the consumer discretionary sector. For convenience and diversification purposes, you can buy a mutual fund that invests in them, such as the Vanguard Consumer Discretionary Index Fund Admiral Shares. Additionally, you can purchase an exchange-traded fund that follows the sector, such as the Consumer Discretionary Select Sector SPDR® Fund.

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