So far this week the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has already lost 2.5% and while the market has clawed back some of its early steep losses, Aussie investors are almost certainly facing the prospect of a down week on the market.
The rapid decline in share prices of a number of so-called blue-chip stocks has been alarming and certainly caught many investors off-guard.
It would appear that now is a time to be extra vigilant and conservative in your valuations as well as ensuring your portfolio is adequately positioned for defense in case the market volatility gets even worse.
Time to play defense not offense
While many leading stocks have sunk to new 52-week lows this week, a small handful have bucked the trend and been climbing to fresh highs.
Perhaps not surprisingly a number of the stocks gaining ground have come from the health care sector. Ansell Limited (ASX: ANN), ResMed Inc. (CHESS) (ASX: RMD), Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) and Somnomed Limited (ASX: SOM) have all managed to hit fresh new yearly highs and in some cases all-time highs.
What is it about the health sector?
The beauty of many health care businesses is that their products and services are non-discretionary which means that their respective business models are not heavily dependent on economic activity or swayed by such things as oil prices.
What's more, they also often enjoy a degree of pricing power which allows them to remain (very) profitable, even during economically stressful times.
A third factor in the above cases is that they are global businesses with exposure to US dollars which is an added tailwind.
From a technical point of view for portfolio management, these stocks could be described as having low betas. This is particularly true of the medical device companies ResMed, Somnomed and Fisher & Paykel. Ansell meanwhile is somewhat exposed to broader economic trends via its industrial gloves business so its beta would be higher.
The performance of these four stocks this week should act as a reminder for investors as to one of the great advantages of running a diversified portfolio and what diversity really is. Uncorrelated business models are an important factor to consider in your portfolio construction process.
