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.
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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.
