2020 was an extraordinary year – but not for stockpickers, because strategies that had done well in the past continued to beat the market.
One of these was defensive investing. My portfolio of these – an equal-weighted basket of the 20 stocks with the lowest beta over the past five years – rose by 8 per cent in the year.
Of course, we’d expect defensive portfolios to out-perform a falling market. But there are two oddities here. One is that my portfolio rose as the market fell, whereas conventional theory tells us that in bad times defensive stocks should only fall less than the market. The other is that defensive stocks have hugely beaten the market over the long term. In the past 10 years, my portfolio has risen almost 90 per cent, outperforming the FTSE 350 by more than 70 percentage points. This is not an artefact of how I’ve constructed the portfolio, and nor is it confined to the UK; over the long run, defensive stocks have outperformed around the world – a finding that is robust to different definitions of defensiveness.