Tuesday, November 20, 2007

playing defense has paid off lately

One trend that is really becoming apparent in the market lately is the out performance of companies in defensive industries with global sales reach. The reason for this is probably a combination of the weak U.S. dollar ending up on the bottom line as well as a general investor rotation into defensive names when the fear of weaker economic growth, or recession in the U.S. rears it's ugly head. International firms that manufacture or retail consumables have really been beneficiaries of this trend over the past year. As examples, take a look at these 1 year returns compared with the general markets:

Global Defensive Companies:
Coke (KO) = +32%
Colgate-Palmolive (CL) = +17%
Procter & Gamble (PG) = +14%
Pepsico (PEP) = +21%
Unilever (UL) = +37%
McDonalds (MCD) = +40%
Yum! Brands (YUM) = +22%
Diageo (DEO) = +16%

Indices For Reference:
S&P 500 = +3%
DJIA = +6%

I did cherry pick these companies, however they are some of the most liquid, well known international defensive stocks. Their performance has been exceptional over the past year. It is often said that the market thinks about 6 - 9 months ahead. If this is truly that case it seems as though the market is anticipating a recession in the U.S. or globally, if not at least a slowdown in the U.S. These stocks will probably not perform as well in 2008 and 2009 if U.S. economic growth actually surprises on the upside in the short to mid term. For anyone holding these names over the last year, your returns have been muted by the fact that the Canadian Dollar has appreciated 17.5% against the greenback since the start of 2007.


Dividends4Life said...

MG: Great post! Many of those companies I've tried to make the numbers work for my dividend portfolio, but could never do it. I do own a little KO though.

Best Wishes,

Financial Jungle said...

Well, guess I picked the wrong global defensive. My JNJ is basically flat, and lower if adjusted to Canadian dollar.

I'm still amazed that McDonald is up 40%.

Thicken My Wallet said...

I guess people eat a lot of Big Mac's when things aren't good!