Have investors finally wised up? This is the question posed by the poor performance of my no-thought defensive portfolio in the past three months.
It fell by 8.1 per cent in the third quarter, far more than the FTSE 350 dropped. This wasn’t because of any one share: Thomas Cook, IQE, IG, Hill & Smith and Indus Gas all did badly.
This partly reverses years of good returns – although even after its recent fall, the portfolio has easily outperformed the FTSE 350 in the last 10 years. And it’s inconsistent with decades of evidence from around the world, which tells us that defensives tend to beat the market on average – a finding that is robust to different measures of defensiveness. (My portfolio is based upon betas in the last five years, but researchers have found that a similar thing is true if we use shares’ volatility instead.)