Why I'd buy this defensive ASX share sector right now

Defensive businesses could be the right way to play the current volatility.

| More on:
Men standing together and defending the goal post symbolising defensive shares.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The defensive ASX share space could be the right way to play the current volatile market, which is fueled by the trade war between the US and China.

Share prices of numerous businesses have dropped since February 2025, making them look cheaper. Will things improve or worsen from here? It could depend on Trump's next moves in the tariff war.

I think the real estate investment trust (REIT) industry is the right place to look for opportunities. These are businesses that own commercial property across Australia.

With what might happen next, I think they could be good investment opportunities for the following reasons.

Reliable earnings

In a period when it's difficult to predict what will happen next, I think businesses that generate reliable operating earnings could be attractive.

Most REITs make their money from leasing out their warehouses, offices, shopping centres, self-storage units, or farms.

A lot of the time, these businesses have tenants signed for many years, giving investors good income security and visibility.

If there were to be a global economic downturn, the share prices of these defensive ASX shares may be able to hold up relatively strongly compared to some more vulnerable sectors, such as discretionary retail.

Interest rates to fall?

One of the main headwinds for REITs over the past three years has been high interest rates because of the elevated cost of debt (hurting rental profits) and the impact it has had on property prices.

There's no guarantee of what's going to happen next, but the market is predicting there could be a few rate cuts over the next year to offset the pain of the impact of tariffs.

If the Reserve Bank of Australia (RBA) does cut the interest rate in Australia, it could significantly help these defensive ASX shares, which have struggled in the last few years.

Some of the most appealing REITs that come to mind include Rural Funds Group (ASX: RFF), Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW), and Dexus Industria REIT (ASX: DXI). Brickworks Ltd (ASX: BKW) isn't a REIT, but it also owns a large portfolio of assets that could benefit from lower interest rates.

Solid distribution yield

Due to the lower unit prices some of these defensive ASX shares are trading at, they offer compelling distribution yields, in my view.

For example, Rural Funds has an FY25 distribution yield of 6.8% and the Charter Hall Long WALE REIT has a distribution yield of 6.6%.

The long-term growth of rental income and rental profits could help those distributions grow in the long term (and also help boost their underlying values).

Overall, I think these ASX defensive shares would be smart buys today with their good yields, resilient earnings, and the potential for falling rates.

Motley Fool contributor Tristan Harrison has positions in Brickworks, Centuria Industrial REIT, and Rural Funds Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks and Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Defensive Shares

The letters ETF on wooden cubes with golden coins on top of the cubes and on the ground
Defensive Shares

Bolster your ASX stock portfolio with these two defensive ETFs

These ETFs can help you sleep at night...

Read more »

Senior man wearing glasses and a leather jacket works on his laptop in a cafe.
Defensive Shares

Overinvested in Woolworths shares? Here are two alternative defensive ASX shares

These businesses offer strong and defensive earnings.

Read more »

Two funeral workers with a laptop surrounded by cofins.
Defensive Shares

Down 24% this year, is this top ASX defensive share a top buy according to Macquarie?

Are investors missing a trick by avoiding this ASX share?

Read more »

A young bank customer wearing a yellow jumper smiles as she checks her bank balance on her phone.
Defensive Shares

Why Telstra shares are an appealing ASX defensive pick

Can investors call on this telco stock for resilient returns?

Read more »

A woman in a hammock on her laptop and drinking a smoothie
Defensive Shares

3 ASX shares to buy for a stress-free life

I think these businesses are attractively defensive.

Read more »

a woman holds her finger to the side of her face and looks upwards as she thinks about something.
Defensive Shares

Portfolio allocation: should I still be buying ASX defensive stocks?

Is this the right time to invest in resilient businesses?

Read more »

Piggy bank at the end of a winding road.
Defensive Shares

Will lower interest rates boost ASX infrastruture stocks?

Let's take a look.

Read more »

Business women working from home with stock market chart showing per cent change on her laptop screen.
Defensive Shares

Forget term deposits! I'd buy these two ASX 300 shares instead

These stocks are more appealing to me than term deposits.

Read more »