It's been a frightening start to calendar year 2016 for investors with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) sinking by around 5.5% year to date.
Falls such as this and in such a short space of time often act as a wakeup call to investors of the importance of owning a defensively positioned portfolio.
Just what is defensive?
The recent market volatility has also forced investors to reassess just what a defensive stock really looks like.
In the past, blue chip stocks have been synonymous with reliability but that assumption is now being questioned by many investors.
For example, after a long cyclical upswing many investors appeared to forget that even BHP Billiton Limited (ASX: BHP) is beholden to the commodity cycle. BHP's share price is down 63% in the past five years.
Likewise, major bank stocks – which look set to enter a period of tightening in the credit cycle – are all down over 20% in the past 12 months.
True Blue Chip
While commodity-exposed companies such as BHP and highly leveraged financial institutions such as the banks might not be as defensive as investors once thought, industrial stocks with reasonable long term growth prospects and solid balance sheets arguably remain a sound bet.
Two stocks which arguably fit that description are Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES). Both stocks enjoy market-leading positions, have appealing opportunities to meaningfully grow their businesses over the coming decade and operate with sound balance sheets.
With Telstra trading on a trailing price-to-earnings (PE) ratio of around 15 times and Wesfarmers on a trailing PE of just under 19x both stocks could arguably be appealingly priced for long term, conservative investors who are looking for quality companies with defensive characteristics.
