Defensive shares on the ASX: a beginner's guide

Let's take a closer look at what a defensive share on the ASX 200 looks like, and if you should add them to your portfolio.

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If you're just starting out on your investing journey and you're doing some diligent research, you'll come across a lot of finance sector language and jargon that can take some time to get your head around. You may have noted phrases like "this share is a great defensive option" or "consider this share if you're looking at a defensive strategy".

Let's take an introductory tour.

What are defensive shares?

These are shares in companies that by the nature of what they do have a potential buffer against economic downtown. You own them to potentially lower the risk profile across your portfolio. Think about it in terms of your own household budget: if you're tightening the belt you may forgo holidays, a new TV, home renovations, and you may even pause some of your insurance policies until things look up. On the flip side, there's no getting around utilities bills, prescribed medications and food.

In terms of strategy you may choose to err on the side of caution and have a relatively high percentage of shares in your portfolio that fit the defensive bill, or you may choose a much lower percentage with the aim of balancing your risk.

What is an example of an ASX defensive share?

As the old saying goes, "nothing is more certain than death and taxes" and this is true no matter the state of the economy. InvoCare Limited (ASX: IVC) is a classic defensive stock. This company operates in the funeral industry, it owns and operates funeral homes, cemeteries and crematoria in Australia and abroad. Many will be familiar with its key brands, including Whitelady Funerals and Simplicity Funerals.

InvoCare has had a good year of growth, underlined by a respectable 18.58% increase in share pricer. Most of that growth occurred in the first half of the current financial year however it has maintained upward momentum since then. Investors will also receive a fully franked dividend at 2.3% yield.

There's also opportunity for some future growth here, as (and I say this most respectfully), Australia has a rapidly ageing population. I'm sure I don't need to extrapolate that for you!

Here's a chart from InvoCare that illustrates this growth.

InvoCare presentation at Macquarie Conference, 2nd May, 2019. Based on ABS data.

If InvoCare appeals to you as part of a defensive strategy, I would encourage you to read a piece written recently by fellow Fool Sebastian Bowen. He's got some valuable thoughts on timing and when to buy these shares. 

Motley Fool contributor JWoodward has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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