Following a generally positive start to 2019 on the markets, you’d be forgiven for thinking that the last few months of last year were nothing more than a blip. Personally, I’m still to be convinced.
With Brexit still very much a ‘known unknown’ and the US/China trade war rumbling on, I think it makes sense to consider positioning your portfolio for every eventuality. That may mean making less money if we get a sudden resolution to these issues, but at least you’ll be able to sleep at night.
As far as exposure to equities is concerned, that could involve owning slices of large companies with defensive (or non-cyclical) characteristics alongside your more growth-focused, higher-risk holdings.
Here’s a selection of what I consider to be the best options available to investors looking for the former.
Safe and sound
If you’re on the hunt for stocks to get you through an economic downturn relatively unscathed, look no further than National Grid (LSE: NG).
It may sound simplistic, but people will always need power and heat and the Grid’s primary function is getting electricity and gas to people “safely, reliably and efficiently“. That arguably makes it less sensitive to political intrusion compared to listed energy firms such as Centrica and SSE.
Yesterday, National Grid’s shares were trading on 15 times expected earnings for the current year (ending March 31). For the security it offers, that’s not unreasonable. And while the fact that its activities are regulated does mean that electrifying price growth is unlikely, the company more than makes up for this as a source of dividends.
The stock is expected to return 47.3p share in the current year, equating to a rather splendid 5.5% yield at its current price.
Another stock that should hold its own relative to others in the market is consumer goods provider Reckitt Benckiser (LSE: RB), owner of health and hygiene brands such as Dettol, Durex, Cillit Bang and Vanish.
Reckitt’s products are available in almost 200 countries and used by millions of people every day. That’s not going to suddenly stop.
Available for 17 times earnings, shares aren’t screamingly cheap but, having fallen out of favour with investors following the questionable acquisition of Mead Johnson and a well-publicised cyber attack, they’re certainly less dear than they once were.
The forecast 3% dividend is well-covered by profits and the departure of CEO Rakesh Kapoor after eight years at the helm could lead to market participants re-evaluating the company.
My final FTSE 100 defensive demon also happens to be my top tip for 2019: Guinness, Smirnoff and Baileys owner Diageo (LSE: DGE).
While I wouldn’t class alcohol as essential, I think it’s more likely than not that people will choose to continue drinking during tough times compared to taking an expensive holiday or buying a new house.
Recent results have been particularly encouraging with the beverage behemoth revealing net sales growth of 5.8% and an 11% rise in operating profit in the second half of 2018.
The only drawback to all this is the fact that Diageo’s shares are anything but cheap.
Having enjoyed a very healthy rise over the last 12 months, the stock now trades on a lofty 23 times forecast earnings and come with a fairly uninspiring (albeit secure) 2.3% dividend yield.
Nevertheless, if you’re looking for stability, I think you could do a lot worse.
