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Risky defensives

Many defensive stocks do not stay defensive forever – but investors have historically been well compensated for this danger.
Risky defensives
  • Defensive stocks are riskier than they seem, because they can suddenly lose their defensiveness.
  • Investors are usually well-rewarded for taking on this risk. 

What exactly is a defensive stock? The question’s a tougher one than you might think.

This year’s fall in Chinese tech giant Tencent (HK:0700) highlights the problem. It barely fell at all as markets tumbled last spring, suggesting it was a great defensive stock. Since February, however, it has lost almost 40 per cent as investors have feared the Chinese government will crack down on tech companies. Being defensive with respect to the pandemic does not mean being defensive with respect to regulatory change.

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