Debate during this bull market has focused on whether to buy high growth ASX tech shares or cyclicals and value shares, but we shouldn’t ignore their forgotten cousins – ASX defensive shares.
That’s the view of Wilsons, which picked a select group of defensives that it believes should be added to your portfolio even in a bull market.
Speaking of which, we can expect lots of bullish sentiment this morning. Our market looks poised to extend yesterday’s big bounce thanks to gains on Wall Street.
ASX defensive shares are a bull in a china shop
Risk appetite is making a comeback after jitters about inflation and overstretched valuations knocked the S&P/ASX 200 Index (Index:^AXJO) about.
This is an interesting time to be talking about defensive shares as they tend to be better suited for periods of bearishness or great uncertainty.
This is particularly so as the ASX 200 is sitting on close to 30% gains over the past year. Unusually, we have not seen a meaningful market sell-off of 5% or more during this period.
Can’t predict timing for a market correction
“It seems odd to be talking about defensive exposures when the outlook for global growth and corporate earnings is one of the strongest we have seen in years,” said Wilsons.
“Whether a pull-back of 5-10% will emerge is unclear, but it is certainly possible given the almost straight-line rally of the past year.”
It’s anyone’s guess if and when a significant market correction will hit the ASX. But at a minimum, Wilsons believes we are heading for a period of “more normal returns”.
Why this is the time to take out a bit of insurance
The broker pointed out that its base case scenario sits alongside the risk of a big correction, which can be triggered by several factors.
This includes inflation, central banks tapering stimulus, rising bond yields, the ever-present COVID-19 threat and geopolitical conflict.
We also can’t rule out a spike in oil prices and the risk that corporate earnings won’t live up to lofty expectations.
ASX defensive shares to buy today
For these reasons, this is the time to be looking at a short list of quality ASX defensive shares that have been overlooked in the tech and value/cyclical rallies of the last 12 months.
There are three ASX defensives that Wilson particularly likes and is on its “focus list” of conviction buys.
Other ASX defensives that the broker also highlighted include the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price, Amcor CDI (ASX: AMC) share price, Coles Group Ltd (ASX: COL) share price and Medibank Private Ltd (ASX: MPL) share price.