With ongoing inflation, economic uncertainty, and global tensions, more investors are looking for ways to protect their money while still earning steady returns. Defensive stocks have historically provided such resilience. These stocks, characterized by their stability and ability to generate consistent returns, offer an attractive investment strategy during periods of market turbulence. They typically belong to sectors such as consumer staples, telecom, healthcare, and utilities which are the industries that maintain steady demand regardless of economic conditions. As investors seek ways to protect their portfolios from downturns, defensive stocks emerge as a crucial component of a well-balanced investment strategy.
That said, the investing landscape has evolved dramatically over the last two decades and the well-known defensive sectors are not as defensive as they used to be. To make this point clear, we refer to a March report by investment management firm T. Rowe Price where investment experts discussed portfolio construction and the sectors likely to outperform during a broad market downturn. They highlighted consumer staples, health care, and utilities as potential defensive plays. Adam Marden, one of the T. Rowe Price experts, emphasized health care’s strength, citing long-term demographic trends, a favourable cyclical outlook in health care tools, and biotech’s improving industry structure.
Adam also noted that while utilities remain defensive, rising AI-related power demands have led to speculative valuations, reducing their diversification benefits in an inflation-driven sell-off. Consumer staples can provide stability in various conditions, but historically, they have been most effective when trading at a discount to the broader market. So, while these sectors still offer defensive characteristics, investors should be careful to assess valuations and market conditions before making decisions on buying such stocks or constructing defensive portfolios.
Balancing Stability and Growth
Given the evolving nature of defensive sectors, investors need a more nuanced approach. One such approach focuses on low-volatility stocks, as highlighted by Fidelity Investments. The firm recently highlighted that stocks with lower volatility tend to decline less during market downturns compared to lower-quality stocks. While adding such stocks to a portfolio may help cushion losses in turbulent markets, it can also lead to more moderate gains in strong markets. Though lower-volatility portfolios reduce downside risk, they don’t eliminate it. Historically, portfolios optimized for risk-adjusted returns have delivered higher long-term gains but with greater fluctuations. One way to build a more defensive portfolio is by focusing on stocks with a history of stability, often due to industry positioning, competitive strength, or solid financials. These stocks can help mitigate losses during market selloffs.
Amid this evolving market environment, experts stress the importance of defensive positioning. In a March 15 interview with CNBC, Adam Parker, CEO and founder of Trivariate Research, emphasized that market positioning and expectations are currently misaligned in the market. While many investors have turned bearish, he believes there hasn’t been enough of a positioning shakeout to justify turning bullish just yet. He emphasized that companies’ upcoming earnings guidance will be crucial. If companies lower forecasts and stock prices remain resilient, it could indicate a buying opportunity. He highlighted the importance of playing more defense than offense until market conditions clarify.
Conclusion
Defensive stocks indeed play a critical role in investor portfolios, particularly during volatile market environments. While they may underperform in strong bull markets, their ability to provide stability and mitigate downside risk makes them a valuable asset for long-term investors. By focusing on companies with consistent earnings, strong financials, and a history of resilience, investors can navigate market uncertainties more effectively.
A trader working diligently at her desk, evaluating stocks of multiple industries.
Our Methodology
To determine the 15 best defensive stocks, we began by filtering U.S.-listed companies with a market capitalization exceeding $2 billion across four key defensive sectors: consumer staples, healthcare, utilities, residential real estate, pharmaceuticals, and telecom. Next, we applied three main selection criteria: a beta of less than 1, positive EPS growth over the past three years and the upcoming financial year, and a dividend yield above 1%. From the resulting list, we identified the top 10 stocks with the highest hedge fund ownership, using data from Insider Monkey’s Q4 2024 hedge fund database. Finally, we ranked these stocks in ascending order based on the number of hedge funds holding positions in them.
Note: All pricing data is as of market close on March 21.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
15 Best Defensive Stocks Amid Market Volatility
15. Atmos Energy Corp. (NYSE:ATO)
Beta: 0.67
Number of Hedge Fund Holders: 31
Atmos Energy Corp. (NYSE:ATO) is the first company on our list. Utilities are recognized for their strong defensive traits, including stable businesses and reliable dividend yields. This company is one of the largest fully regulated natural gas utilities in the United States, serving approximately 3.5 million customers across eight states. It is involved in regulated natural gas distribution as well as pipeline and storage operations.
Over the past eleven years, Atmos Energy Corp. (NYSE:ATO) has invested more than $15 billion to upgrade and expand its natural gas infrastructure. These investments include replacing 900 miles of distribution and transmission main lines to improve system reliability and safety. According to the company, 90% of its yearly capital spending generates returns within six months, making it an attractive investment prospect. As of Q1 FY 2025, the company has a weighted average debt maturity of 17.8 years, ensuring financial stability to support its ongoing infrastructure projects. This extended debt maturity reduces short-term refinancing risks while enabling continued investment in modernization efforts.
Mizuho Securities analyst Gabe Moreen recently reaffirmed a Buy rating for Atmos Energy Corp. (NYSE:ATO) following its Q1 2025 earnings report released on February 5. The company slightly exceeded market expectations for earnings per share, further solidifying its consistent performance track record.
The analyst also highlighted the company’s dependable execution and ambitious five-year growth plan, backed by a notable rise in capital expenditures. Additionally, favourable natural gas basis spreads in Texas have contributed positively to its financial outcomes. Although Moody’s has issued a negative credit outlook citing debt levels, Atmos management expects this to be reconsidered.
14. Equity LifeStyle Properties Inc. (NYSE:ELS)
Beta: 0.78
Number of Hedge Fund Holders: 32
Equity LifeStyle Properties Inc. (NYSE:ELS) is a real estate investment trust (REIT) specializing in manufactured home communities, resort-style recreational vehicle (RV) parks, and marinas across North America. With a portfolio of over 450 properties and 173,000 sites, the company benefits from strong demand for affordable housing and leisure-focused properties.
The company operates in a niche area of real estate that has shown resilience during economic cycles, providing steady rental income and consistent returns for shareholders. Its properties generally attract retirees, vacationing families, second homeowners, and first-time homebuyers by offering a community experience and a cost-effective alternative to traditional homeownership.
On January 28, Equity LifeStyle Properties Inc. (NYSE:ELS) announced its Q4 2024 results, which were mostly in line with market expectations. The company achieved strong financial results, with a 6.9% growth in normalized funds from operations (FFO) per share for the quarter and a 5.9% increase for the entire year, driven by solid core portfolio performance.
Following the earnings report, a Deutsche Bank analyst upgraded Equity LifeStyle Properties Inc. (NYSE:ELS) from Hold to Buy and raised the price target from $66 to $73. Deutsche Bank has shifted its strategy in the residential REIT sector for 2025, focusing on subsectors and stocks less affected by ongoing supply challenges. As part of this strategy, the bank adopted an overweight position on manufactured housing due to its perceived stability, which contributed to the upgrade.