Content provided by Grant Engelbart, CLS Investment Research Analyst

As a basketball player, I pride myself in playing stellar defense. In my mind, there are only a few things in life more degrading to a person than blocking their shot halfway across the court. I’ll often let an opponent past me only to inconspicuously follow, wait for the shot to go up, and smash it against the backboard. I am basically just like Gorgi Dieng. The older I get though, the more players seem to get past me, but I use the sneaky shot block as an excuse.

Usually you don’t get a lot of credit for good defense. As shown in the chart below, defensive names are getting tons of credit this year. This situation can be quite flustering for portfolio positioning. One would think, if the market rally continues then traditionally sensitive and cyclical stocks would be on the “Offensive” and outpace defensive sectors. Also, many of these defensive sectors have become stretched from a valuation perspective. However, if we slow down and see a little market weakness then defensive sectors can sneak up and outperform again.


grant graph

There are still some defensive superstars out there that haven’t quite reached their full potential. A cautiously optimistic investor would be wise to seek out defensive areas that still have attractive valuations. Within Healthcare, Pharmaceuticals, and Medical Devices there is still attractive value. Within Consumer Defensive stocks like Food retailing, still offers value as well and also one of my favorite ETF tickers – PBJ! The granularity found in the ETF universe nowadays allows investors to pick and choose subsectors like these.

There are many things to be ascertained by a market rising mainly on the backs of defensive names. Are investors preparing for a market pullback? Is it the search for yield that has pushed these sectors higher? Does defense win championships or is the best defense a good offense? Several months from now, if economic activity in the United States and around the world continues to improve, we may forget all about these defensive leaders. After all, no one on defense ever gets an MVP trophy!







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