Earlier this week I wrote a simple beginner's guide to defensive shares on the ASX. I want to flesh this idea out some more by providing a couple of easy to understand examples to help you as you do your own research.
To begin with, here's a quick refresher.
What are defensive shares?
These are shares in companies that, by nature of what they do, have a potential buffer against economic downturn. In other words, these are companies that produce goods and services that no matter the economic environment of the time, we really can't do without them. As an investment strategy, they lower the risk profile of your portfolio.
Here are a couple of suggestions for your consideration.
Coles Group Limited (ASX:COL)
You can purchase Coles shares for $13.48 (at time of writing). The share price has grown modestly since its listing at $12.75 late last year, achieving a year-to-date improvement of 4.55%. With plans afoot to alleviate some costs and a new 'refreshed' strategy being rolled out, combined with an expected healthy dividend announcement soon, there's reason for optimism.
How do Coles shares provide my portfolio with an economic buffer?
A human being must eat, no matter the state of the economy, and for many Australians their local Coles supermarket is the most convenient option. I'd also highlight that I've used the word 'buffer' and not something more certain like 'guarantee'. In economic downtimes, we might reduce our household grocery budget, we might buy less or choose cheaper products and in doing so reduce our overall spend at Coles. The point to remember, though, is shoppers will still frequent the stores to buy food and many of those cheaper options fall under Coles' own home-brand product lines. The desired flow-on effect being that the share price may dip or stay roughly in the same vicinity, protecting your portfolio from the wild ride more cyclical shares may go on in uncertain times.
CSL Limited (ASX:CSL)
CSL is one of the genuine superstars on the ASX and a fantastic Australian success story. It produces life saving and life-changing biomedical therapies for some of the most serious medical conditions and illnesses as well as vaccines. The company spends a bucket of money on research and development (US$2.9 billion in the past 5 years alone) to keep on innovating and to keep on saving lives. CSL shares are not cheap, they'll cost you $215.19 each and those shares continue to grow in value with a 10.35% increase over the past year.
How do CSL shares provide my portfolio with an economic buffer?
No amount of economic downturn will prevent people from accessing the medical help they need in potentially the worst time of their lives. With many lifesaving drugs and therapies on the Pharmaceutical Benefits Scheme and various other discounts available for pensioners, we still live in the lucky country. If you can afford to add CSL to your portfolio, you'll get your defensive buffer and the bonus of knowing that you own a tiny portion of a company that saves lives around the world.
