It’s even more depressing to think it’s lost 5% since its mid-August peak.
So more investors are now starting to wonder about defensive ASX shares.
Pengana Australian Equities Fund is certainly thinking that way, according to a webinar seen on Tuesday.
Analyst Mark Christensen said his team is unearthing resilient stocks by applying one of 3 tests:
- Inflation protection through pricing power and long-term contracts
- Avoiding ‘forecasting errors’ for post-lockdown and post-COVID performance
- Resilience to supply chain and inventory disruptions
What does the Pengana team mean by “avoiding forecasting errors”?
“We protect ourselves here by making sure that we’re in defensively characterised businesses to start off with,” he said.
“That is businesses that are not going to have volatile earnings. Businesses that have been pretty solid through COVID and hopefully coming out of it as well. And whose underlying drivers are not so cyclical but have some fundamental growth underlay.”
The additional element the Pengana team favours is transparent business models, which provide certainty for ongoing earnings.
People need these products, it’s not a choice
Christensen cited respiratory device maker Resmed CDI (ASX: RMD) as a classic defensive example.
“People who use those products do so because they need them. It’s not discretion.”
Resmed shares are down a whopping 11.3% over the past month, but have climbed 27.4% this year despite that.
Supermarket giant Woolworths Group Ltd (ASX: WOW) is another business with a transparent revenue model and stable earnings.
“Woolworths is obviously a very defensive stock,” said Christensen.
Shares for Woolies are up nearly 16% for the year so far, but have shaved 3.6% from the price over the past month.
The other ASX shares Christensen likes for their resilience are healthcare player CSL Limited (ASX: CSL), private hospital network Ramsay Health Care Limited (ASX: RHC), and property developer Mirvac Group (ASX: MGR).
CSL and Ramsay have been hammered 6.5% and 4.3% downwards respectively in the past month. Mirvac shares have lost 6.2%.
“More than half of our portfolio is in what we call defensive names, and that helps a lot when we’re making an assessment about what future earnings look like.”