There are a number of defensive ASX shares that I’d be happy to buy for my portfolio.
However, plenty of them are trading quite expensively, so I’d only want to buy businesses that are trading at a good price.
Here are three quality ASX share options:
TPG Telecom Ltd (ASX: TPG)
It’s now one of Australia’s biggest telecommunications businesses. TPG and Vodafone Australia recently merged – the combined business now has a strong presence in both home internet and mobile connections.
The combined business should be able to extract pleasing cost synergies. One big bonus is that it only needs to build one 5G mobile network, rather than two. The business will also be able to cross-sell its mobile offering to broadband customers, and the broadband customers can be offered a mobile deal.
Telecommunications is a defensive industry, so TPG could be called a defensive ASX share with steady monthly revenue from customers.
I think TPG could become the most efficient big telco with the influence of the former TPG business. The combined business plans to pay out larger regular dividends for investors, which will boost total returns.
TPG’s share price has fallen 9% since 30 June 2020, so this could be a good time to buy.
Magellan Global Trust (ASX: MGG)
Magellan is a listed investment trust (LIT) which is focused on global shares. The LIT is operated by the high-performing Magellan Financial Group Ltd (ASX: MFG).
It aims to invest in the highest-quality shares in the world. It doesn’t go for ASX shares. Some of its biggest investment include technology companies like Alibaba, Alphabet, Microsoft, Tencent, Facebook, Visa and Mastercard. These businesses are in the right industries to weather the terrible global impacts of COVID-19.
However, Magellan Global Trust also owns a number of defensive positions to protect the portfolio against negative market movements. Magellan Global Trust owns businesses like Atmos Energy, Eversource Energy, Xcel Energy and Reckitt Benckiser.
At the end of July 2020 it had a relatively large cash position to defend against downside market movements. It had a cash weighting of 18% at 31 July 2020.
Its net returns over the longer-term have been quite strong. Since inception its portfolio has produced net returns of 11.8% per annum, outperforming the MSCI World Net Total Return Index by 1.7% per annum.
I like the global diversification offered by this ASX share and it generally performs better than the index.
As a bonus, the LIT targets a 4% distribution yield which is decent for income investors.
The Magellan Global Trust share price is trading at a 3.4% discount to its current indicative net asset value (NAV).
Rural Funds Group (ASX: RFF)
Real estate investment trust (REITs) generate defensive regular rental income from tenants.
However, this COVID-19 period has been difficult for most REIT sectors including shopping centres and office buildings.
But farmland is more defensive, everyone needs to eat food after all. However, as the landlord, Rural Funds doesn’t have the operational risks like the tenant does. Even so, Rural Funds owns sizeable water entitlements which can be used by tenants.
The ASX share generates attractive cash rental profit whilst steadily investing in its farms to improve them to create higher rental earnings. The defensive ASX share also benefits from contracted rental increases which are either a fixed 2.5% per annum, or it’s linked to CPI inflation, plus market reviews.
Rural Funds aims to increase its distribution by 4% per annum, which is more than inflation.
At the current Rural Funds Group share price it offers a distribution yield of 5.1%.
Each of these defensive ASX shares have attractive defensive attributes. I think Rural Funds is the most defensive, but it’s trading at a decent premium to its NAV whereas Magellan Global Trust is trading at a discount, so it would be the one I’d go for first.
Where to invest $1,000 right now
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Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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.