Optimise defensive investment strategies with gold

Investors pursuing defensive investment strategies hold top stocks from leading indices or ETFs on benchmark indices. They also invest in stocks from industrial sectors less susceptible to economic downturns, traditionally have the advantage of lower volatility and a more stable performance, and are more reliable in terms of generating dividends than stocks in benchmark indices. Defensive sectors include consumer staples, medical care, telecommunications, energy, and utilities.

With bull markets, defensive strategies do not generate best returns

Defensive investment strategies have to pay for lower portfolio volatility in times of boom with a suboptimal performance compared to top stocks or indices. So much for the theory. Defensive investment strategies’ actual performance has been analysed by the World Gold Council based on US financial market developments over the past 25 years. During this long period, many years saw booming markets and record highs in leading stock indices, but also the bursting of the dot.com bubble, the global financial crisis, the COVID pandemic, and the Russian invasion of Ukraine.

Defensive investment strategies proved more successful with gold

The World Gold Council’s research shows that, at least over a longer period, the inclusion of defensive stocks can lead to better portfolio performance. US-based investors who limited their stock investments to the S&P 500 Index achieved an average return of 7 per cent p.a. from 1998 to the present, while a 20 per cent addition of stocks from defensive sectors provided a higher return of 7.7 per cent. An investor portfolio with only a 10 per cent addition of shares from defensive sectors, but a further 10 per cent of gold, performed even better. With this mix, the average performance increased to 8.4 per cent. Also, the portfolio volatility and the risk/return ratio further improved with the addition of gold compared to the simple defensive investment strategy.