Defensive stocks tend to have a track record of performing consistently, or sometimes even better, during a market crash or recession. This is because they belong to sectors where there is a constant demand for products, including food and beverages, utilities, and healthcare services. These types of products don’t usually see a major change in demand throughout the year and are said to have “inelasticity of demand”, which means that if their price changes, it won’t significantly impact demand.
For this reason, defensive stocks are often seen as a type of ‘safe haven asset’ which investors may buy and hold as a way to hedge against portfolio risk. This means that, in times of economic downturn when cyclical sectors are underperforming (consumer discretionary, travel and tourism, technology etc), defensive stocks remain strong and may help to balance out the risk on your open positions in economically sensitive areas.