It feels like every second word in financial reporting lately is 'uncertainty'.
Uncertainty surrounding everything from interest rates, household spending, and consumer confidence through to the stability of the global banking system.
Just last week, the RBA cited 'an environment of considerable uncertainty' as one of the main reasons for hitting the pause button on interest rate hikes following ten consecutive increases.
During periods of heightened economic uncertainty, many investors look to add some ASX defensive shares to their portfolios. These tend to be large, dividend-paying companies or those that enjoy consistent demand for their products and services, even during economic downturns.
Of course, not all investors feel the need to buffer their portfolios with defensive stocks. Those with extremely long investment horizons or strong appetites for risk may be happy to roll with volatility punches that inevitably come with owning only growth or cyclical shares.
But if, like the great Warren Buffett, you prefer your investments to have some strong defensive qualities, keep reading!
Because we asked our Foolish writers which ASX defensive shares they think could be champion buys right now. Here is what the team came up with:
6 best defensive ASX shares for April 2023 (smallest to largest)
- iShares Global Consumer Staples ETF (ASX: IXI), $200.74 million
- National Storage REIT (ASX: NSR), $3.42 billion
- Metcash Limited (ASX: MTS), $3.74 billion
- Transurban Group (ASX: TCL), $44.85 billion
- Woolworths Group Ltd (ASX: WOW), $46.83 billion
- CSL Limited (ASX: CSL), $141.62 billion
(Market capitalisations as at market close of 6 April 2023).
Why our Foolish writers love these defensive ASX stocks
iShares Global Consumer Staples ETF
What it does: This exchange-traded fund (ETF) invests in a basket of shares, sourced from all around the world, that make, produce, or sell consumer staples goods.
By Sebastian Bowen: The iShares Global Consumer Staples ETF is my go-to ASX investment to bolster my share portfolio's defensiveness. The companies that it exclusively invests in are consumer staples shares.
These companies produce and sell food, drinks, household essentials, and also a variety of vices such as alcohol and cigarettes. They tend to be the products we 'need' rather than 'want' and, as such, tend to be the last thing to get chopped from the budget when consumers are feeling the squeeze.
Additionally, with names like Coca-Cola, Walmart, Colgate-Palmolive, and Procter & Gamble in this ETF's portfolio, it provides exposure to some of the world's best, most famous, and most powerful brands.
So, this is a defensive ASX share that I am more than happy to have as a cornerstone of my portfolio right now.
Motley Fool contributor Sebastian Bowen owns shares in the iShares Global Consumer Staples ETF, Coca-Cola, and Procter & Gamble.
National Storage REIT
What it does: As one of the leading self-storage providers in Australia and New Zealand, National Storage owns and operates 228 storage assets, providing over 1.2 million square metres of net lettable area for residential and commercial storage customers.
By Mitchell Lawler: When I think of defensive companies, my mind is drawn to the boring pockets of the market for two reasons: They usually don't attract as much competition and are typically difficult to disrupt.
I'd be willing to go out on a limb and say there aren't too many people who think storage is full of thrills. But, as an investor, thrills and excitement are not what determines returns.
What I personally like about this type of business is its stickiness. Most people will throw all their excess 'stuff' in storage, planning to deal with it at a later date. Though, 'some day' often ends up being months or years later than originally intended.
When it comes to National Storage specifically, I'm impressed with its expansion execution and use of capital. According to its half-year results, the company has the best cap rate of its peers, signifying industry-leading capital allocation.
Motley Fool contributor Mitchell Lawler does not own shares in National Storage REIT.
Metcash Limited
What it does: Metcash has three divisions. Firstly, it has a food division that supplies IGAs around the country. Secondly, Metcash has a liquor division that supplies independent retailers like Cellarbrations, The Bottle-O, IGA Liquor, and Porters Liquor. Thirdly, the company also has a hardware division which includes retailers Mitre 10, Home Timber and Hardware, and Total Tools.
By Tristan Harrison: I think supermarket food and liquor are among the most defensive areas of the economy. Hardware may be a little more economically cyclical, but I believe Metcash's hardware earnings will be defensive enough.
Metcash is the type of business that I think can be a key beneficiary from Australia's growing population, partly thanks to a return to higher levels of immigration.
I like that the business pays 70% of its underlying net profit after tax (NPAT) as dividends. According to Commsec projections for FY23, this could represent a grossed-up dividend yield of 8.25%. I also approve of the company's ongoing investment in its supply chain, including a new distribution centre in Victoria.
Motley Fool contributor Tristan Harrison does not own shares in Metcash Limited.
Transurban Group
What it does: Transurban counts amongst the world's largest toll road operators and developers. The company has 17 toll roads in Australia, five in the United States, and one in Canada.
By Bernd Struben: If you're worried about a recession, I think Transurban is a great defensive ASX share to consider buying. Regardless of economic conditions, people need to get around. And in Australia, the US, and Canada, we mostly do that by car.
While many stocks are vulnerable to the eroding effects of inflation, Transurban is able to index the tolls on approximately 68% of its roads in line with inflation. And business is booming.
In its recent half-year results, the company reported record traffic volumes on its roads. That helped drive a 43% year-on-year increase in toll revenue, which hit a record $1.66 billion over the six months.
The Transurban share price is up 12% in 2023. The stock pays an unfranked trailing dividend yield of 3.7%.
Motley Fool contributor Bernd Struben does not own shares in Transurban Group.
Woolworths Group Ltd
What it does: Woolworths operates its namesake supermarket chain, as well as Big W and New Zealand's Countdown supermarkets.
By Brooke Cooper: When I think of defensive ASX shares, the first stock that comes to mind is Woolworths.
As consumers, we can't simply forgo the supermarket shop when looking to reduce our weekly spend. Further, shoppers will likely continue to fork out on daily essentials even when inflation sends prices soaring.
Thus, the consumer staple stock's earnings are more resistant to economic downturns than many of its discretionary peers'.
Not to mention, Goldman Sachs tips the company to grow its market share over the coming years. The broker has a buy rating and a $41 price target on Woolworths shares.
Motley Fool contributor Brooke Cooper does not own shares in Woolworths Group Ltd.
CSL Limited
What it does: CSL is one of the world's largest biotherapeutics companies. It comprises the CSL Behring, CSL Vifor, and Seqirus businesses.
By James Mickleboro: I believe it is hard to look beyond CSL when it comes to defensive ASX shares.
As well as operating in a recession-proof sector, the company has a portfolio of life-saving therapies with strong pricing power and limited competition.
Combined with its new plasma collection technology, improving collection conditions, and lucrative R&D pipeline, I feel confident that CSL is well-placed for strong growth in the coming years, whatever happens in the global economy.
Citi appears to agree with this view. It is forecasting double-digit earnings per share (EPS) growth through to at least FY 2025. It is partly for this reason that the broker currently has a buy rating and a $350.00 price target on its shares.
Motley Fool contributor James Mickleboro owns shares in CSL Limited.
