With the S&P/ASX 200 Index (ASX: XJO) climbing dramatically this week to a new post-COVID high, it can be tempting to think these sorts of lucrative market conditions can last forever. Alas, this has never been, and will never be, the case.
The markets are a volatile beast, and can both giveth and taketh away. While some investors embrace this inherent volatility as a useful way to buy shares on the cheap, it can be downright scary, and off-putting, for many others. That’s where defensive ASX shares can be useful.
There are defensive ASX shares out there that have the potential to increase the stability and decrease the volatility of one’s portfolio if that’s an important consideration for you. Here are two such ideas today:
iShares Global Consumer Staples ETF (ASX: IXI)
This exchange-traded fund (ETF) from iShares only invests in a basket of global companies in the consumer staples sector. Consumer staples is an investing term that describes all of the goods and services we all tend to need, rather than want. This includes food, drinks, household essentials like laundry powder, soap and dishwashing liquid, and vices like alcohol and tobacco.
The beauty of this sector is that it tends to be almost completely immune from economic conditions. We all need to eat, drink and run our houses in good times and bad. And that makes these companies extremely defensive investments. Some of this ETF’s largest holdings include Coca-Cola Co (NYSE: KO), Procter & Gamble Co (NYSE: PG), Unilever plc (LON: ULVR) and McDonald’s Corp (NYSE: MCD). Even our own Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) feature.
This ETF has returned an average of 12.11% per annum over the past 10 years. It charges a management fee of 0.46% per year.
Magellan Infrastructure Fund (ASX: MICH)
This listed fund is run by Magellan Financial Group Ltd (ASX: MFG). Magellan is one of the most popular fund managers in Australia. This fund focuses entirely on infrastructure. It invests in companies with large, stable infrastructure investments like toll roads, ports, airports, energy infrastructure and power generation and transmission. Like consumer staples, demand for these assets tends to be very consistent and inelastic. That means they tend to generate cash flows in good times and bad, making them very useful defensive investments.
Magellan Infrastructure Fund holds companies like Atmos Energy Corporation (NYSE: ATO), Enbridge Inc (NYSE: ENB) and our own Transurban Group (ASX: TCL).
This defensive ASX share has returned an average of 5.81% per annum since its inception in 2016. It charges a management fee of 1.05% per year.