In troubled times with rising interest rates, rampant inflation and a floundering economy, it makes sense that ASX investors would flee to defensive shares.
However, the market can reach a situation when most of the movable capital has already shifted, meaning those turbulence-resistant stocks become overpriced.
According to the team at Market Matters, the ASX may be close to that saturation point now.
"One of our concerns is investors have been nervous towards risk through 2023, hence the defensive names are already 'well owned'."
However, if you have a long investment horizon there may still be some defensive gems with decent returns remaining.
Here are two examples:
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'No need to venture into the risker end of the market'
Telstra Group Ltd (ASX: TLS) shares have chugged along nicely this year, quietly rising more than 11% since New Year's Day.
Despite the ballooning valuation, the stock still pays out a respectable 3.9% dividend yield.
The Market Matters team, while already holding it in its income portfolio, told its clients in a memo that it would buy more on dips.
"Telstra has proven an excellent defensive stock through 2023 and we see no reason for this to change — i.e. the strong keep getting stronger!"
The telecommunications giant has perfectly demonstrated how investors should shake off any prejudice that defensive stocks don't provide chunky returns.
"The telco recently hit a new 52-week high, up 9.3% year to date — a great example of the sort of returns that can be achieved from large-cap (safe) stocks," read the memo.
"No need to venture into the risker end of the market!"
The business has reported "strong" numbers and has a tangible plan for the future.
"They are well on their way towards their T25 strategy — a great example of a company executing on their well-laid out plans," read the Market Matters memo.
"Market Matters is long and bullish on Telstra."
'Tailwinds across all divisions'
Biotechnology giant CSL Limited (ASX: CSL) has seen its shares go sideways ever since COVID-19 struck the world three years ago.
The stock price still hasn't returned to the pre-pandemic high, although many experts are betting that it will pretty soon.
The Market Matters analysts are in this camp.
"We believe that CSL is set to enjoy tailwinds across all divisions that should see sales produce a compound annual growth rate (CAGR) of 13% over the next 5 years."
Much like Telstra, the team is "long and bullish" on CSL.
"We like CSL as a recovery play after COVID and this remains on track as blood donations increase."
While its dividend yield is negligible, the CSL share price has rocketed 66.5% over the past five years. It's better than a five-bagger if you go back a decade.
