Your instant 6-share defensive portfolio

Focussing on protecting your downside becomes increasingly important as markets climb higher.

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Billionaire hedge fund manager Eric Sprott recently said:

“Claims that the US economy is suddenly rebounding have been made before. They are misleading at best and fallacious at worst. It would not be surprising to see further deterioration, which would force central planners to initiate additional unconventional intervention (i.e. Quantitative Easing).”

Sprott is not the first, or the only influential investor to raise concerns about the weakness of economic recoveries around the world and the stretched prices investors appear to be willing to pay for stocks.

While these bearish views are countered by opposing (but equally intelligent) views that there is no reason to suspect impending doom, for investors who aim to have a portfolio with lower volatility and less downside risk, the following blue-chip stocks could be just the ticket in these uncertain times. These five stocks should provide investors with constant dividends and stable earnings and are not as dependent on economic prosperity and market cycles.

Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) sell most Australians a significant proportion of their non-discretionary items such as food, liquor, petrol and basic clothing. Increasingly these two retailers are also selling other essential services such as insurance and telecommunications to their customers as well.

AGL Energy Ltd (ASX: AGK) and Origin Energy Limited (ASX: ORG) are major suppliers of electricity and gas to households and corporates across Australia. Not only are AGL and Origin’s end products essential and hence defensive but their wide distribution of customers provides diversification too.

Sydney Airport Holdings Ltd (ASX: SYD) and Transurban Group (ASX: TCL) are very close to what can be termed monopoly assets and generally speaking a monopoly asset has a number of enticing defensive characteristics. In the case of Sydney Airport, the company literally owns the “gateway to Australia”; meanwhile unless commuters are prepared to dramatically extend the length of their journey time, then travelling along Transurban-owned toll roads is a must.

Foolish takeaway

While bullish investors will see no cause for concern as the market climbs higher, a healthy dose of scepticism and critical thinking is important for investors who are intent on protecting their portfolio from downside risks.

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*Returns as of August 16th 2021

Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.

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