I have made a number of posts outlining the current opportunity in fixed income investments (bonds and similar securities). While I believe it is time to be overweight fixed income, most investors should also have equity exposure for a variety of reasons: as a hedge against a quicker than anticipated rebound, a hedge against high inflation, and the simple fact that over very long periods of time stocks have outperformed bonds.
The question is, what equities should be held? The traditional selections in times like these seem to fit the bill today as well: “defensive” stocks. Stocks in companies that provide goods that people will buy even when they are pinching pennies. Common examples include:
- Utilities: you want to turn on the lights and heat your house. Plus, they usually pay a nice divided.
- Staples: food, beer, toilet paper.
- Health care: I don’t like this one as much since there are so many regulatory hurdles these companies must deal with, but people will continue to go to the doctor and need medicine.
The people at breakingviews.com have put together a basket of 22 stocks called the “Poor Getting Poorer Index” that includes a set of companies that they feel will do well in a recessionary economy. They claim it is up 9% so far this year.