Defensive or non-cyclical stocks are stocks which are not highly correlated with the business cycles, have in general low volatility expressed as a low beta, and many times pay a dividend. A broader definition for defensive stocks is that they are stocks with relatively stable earnings, performing well mostly in periods of economic contraction or recessions. It is important to mention that defensive sectors are healthcare, utilities, and consumer staples. Commodities are another sector which can be considered a defensive sector including commodity goods such as coffee, oil, sugar.
One of the most important features about defensive stocks is that the tend to outperform in economic downturns and underperform in business cycles such as expansion. They are stocks of companies providing goods and services considered necessary on a daily basis, and therefore are the least likely to get influenced by changes in consumer spending habits in times of economic recessions.
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