Looking to build a defensive ASX share portfolio? Investing in defensive shares can be tempting when you think that the global economy is facing some pressure. It's arguably a great alternative to what investors usually do when they are worried about the future of the stock market – selling out of their investments and going to cash.
According to reporting in The Australian this week, brokers at Macquarie have reportedly warned their clients to "stay defensive" in their share portfolios. This is due to a recent rise in US bond yields, a consequence of "US employment growth, rising oil prices and expected higher US Treasury issuance".
Macquarie analyst Matthew Brookes told investors that:
This is squeezing an already low equity risk premium and pressuring share prices…
With growth also slowing due to the lagged effect of past hikes, and the latest SLOOS (senior loan officer opinion survey) showing US credit conditions are tight, we still favour a defensive, low beta portfolio… We again note August and September tend to be more volatile for ASX equities.
But how would I build a defensive portfolio today? I would use these seven, high-quality ASX shares as a foundation, which come from defensive sectors like consumer staples shares.
7 ASX shares I would use to build a defensive portfolio
Coles Group Ltd (ASX :COL)
We all know Coles as the second-largest grocer and supermarket operator in the country. Coles is an inherently defensive, consumer staples share, thanks to its role in providing its customers with life essentials like food, drinks and household items at low-cost prices.
Customers are going to be buying these must-haves from Coles, regardless of the economic weather. Coles also has a relatively cheap share price right now compared to its rival Woolworths Group Ltd (ASX: WOW). In addition, the company offers a decent, fully franked dividend yield of over 3.6% today.
Bega Cheese Ltd (ASX: BGA)
Another consumer stapes stock, I would include Bega in our portfolio for similar reasons. Bega provides Australia with some of their favourite foods, including its eponymous dairy and peanut butter products.
But Bega also owns some of our most beloved brands as well. Its range includes Dare iced coffee, Farmers Union yoghurt, Daily Juice, Dairy Farmers and Pura milk, and Zooper Doopers.
Given the enduring popularity of these brands, I also consider Bega to be a defensive share worth holding in our portfolio. Like Coles, Bega also pays a decent, fully-franked dividend, which is currently yielding just over 3%.
Telstra Group Ltd (ASX: TLS)
Telstra is another famous name to grace our list today. This is another company that needs little introduction – chances are most readers have used a Telstra product or service at some point. Telstra is also a highly defensive share. Its mobile network is almost universally regarded as the top offering in the Australian telco space, and many customers use it as there is simply no alternative.
When you think about what it would take for Telstra's customers to give up their mobile phone or home internet connection, you'll understand why Telstra is such a highly defensive share. It was one of the few ASX blue chips that weren't forced to cuts its dividend during COVID-ravaged 2020, after all. Today, Telstra shares offer a fully-franked dividend yield of just over 4%.
Endeavour Group Ltd (ASX: EDV)
Endeavour isn't really a household name. But I'm sure that most Australians would know its flagship bottle shop chains in BWS and Dan Murphy's. Yet another consumer staples share, Endeavour has a lot to offer a defensive ASX portfolio.
It's a fact of life that we collectively tend to enjoy a drink in all economic climates. This gives Endeavour a highly durable earnings base that should deliver profits around the clock. Right now, Endeavour has an attractive, and fully franked, dividend yield above 4.7%.
Transurban Group (ASX: TCL)
Turning away from consumer staples stocks for a moment, here we have toll road operator Transurban. Transurban has a near-monopolistic grip on the toll roads of Australia. The company owns almost every single toll road in Sydney, as well as many in Melbourne, Brisbane and across the Pacific in North America.
It takes an economic event as calamitous as a pandemic to dent Transurban's profits. Otherwise, motorists are going to be using this company's toll roads, rain hail or shine. For some, it will be so that they can save precious time out of their day. For others, it will be because there is simply no alternative route possible.
Furthermore, Transurban's tolls are usually inflation-linked and rise periodically. This helps to insulate the company's profits from inflation and further adds to the defensive nature of this company.
Transurban shares currently offer a dividend yield of over 4%.
Lottery Corporation Ltd (ASX: TLC)
Lottery Corp may be new on the ASX. But, like Transurban, shows considerably monopolistic qualities. This company holds the exclusive license to run lotteries, as well as Keno games, in most Australian states and territories at present. For example, its current New South Wales license only expires in 2050.
Lotteries tend to be a defensive business, as customers tend to keep coming back for their chance at a life-changing jackpot, economic boom or bust.
As such, I think Lottery Corp is a perfect share for our defensive ASX portfolio. It also pays a fully-franked dividend.
iShares Global Consumer Staples ETF (ASX: IXI)
Finally, let's conclude with another consumer staples investment. This exchange-traded fund (ETF) gives our defensive portfolio a nice diversification boost. It holds a basket of consumer staples stocks from around the world.
These include some of the biggest names in food, drinks and the like. An investment in IXI units will give an investor exposure to the likes of Coca-Cola Company, PepsiCo, McDonald's, Philip Morris International, Colgate-Palmolive, Walmart and L'Oreal. Chances are your own household will have several of the products that these international giants produce in it right now.
For some nice diversification outside Australia to some of the world's most enduring and high-quality companies, I think this ETF is a no-brainer to round out our defensive ASX share portfolio.