Defensive Buy

DEFINITION of 'Defensive Buy'

Securities or investments that are perceived as being lower risk by virtue of their lower exposure to economic cycles. While the term is generally used in connection with stocks that possess defensive characteristics, such as stable cash flows and lower volatility, it may also be used to refer to lower-risk securities such as government bonds and preferred shares. Defensive stocks may outperform their flashier counterparts like growth stocks during periods of economic uncertainty when equity markets display a declining trend, but will underperform during periods of economic expansion.

BREAKING DOWN 'Defensive Buy'

From an equity perspective, defensive buys are usually found in sectors that are immune to recessions and economic slowdowns. These sectors generally comprise suppliers of essential goods and services - such as pharmaceuticals, utilities and consumer staples - that consumers cannot forgo even during difficult economic times. Savvy investors with diversified portfolios will tend to overweight defensive stocks during slow or no growth periods, and underweight them during expansionary periods.

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RELATED FAQS
  1. What other sectors besides utilities are known as defensive?

    See why certain sectors, other than utilities, are considered defensive and therefore more resistant to the downturns of ... Read Answer >>
  2. Why is buying a utility stock known as defensive move?

    Utility stocks are known as defensive stocks for investors due to the fact that consumer demand will remain high even when ... Read Answer >>
  3. What are defensive stocks?

    The term defensive stocks is synonymous to non-cyclical stocks, or companies whose business performance and sales are not ... Read Answer >>
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  5. What are the safest investments during a bear market?

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