US markets surged on July 12 after fresh data showed clear signs that inflation is cooling. This was yet another blow to analysts who were vehemently making predictions about recession for about a year now. Last month, after a separate report from the US government on economic data, Yardeni Research’s Ed Yardeni said that the “permabears will have to postpone their imminent recession yet again based on today’s batch of US economic indicators.” The analyst said that the “rolling recession” was becoming “rolling expansion.”
Positive economic is also causing research institutes to improve their forecasts on the US economy. For example, Bloomberg’s survey of economists now expect real gross domestic product to be roughly flat next quarter on an annualized basis. This is much better than their previous forecast of a 0.9% decline.
But all of this does not mean that the US economy is totally out of recession risk. In fact many believe the economy is still expected to suffer recession but later than expected. A Bloomberg survey still sees a 64% probability of a recession in the next 12 months.
This is where defensive and safe haven investments come in. They are not for the recessions only. Wise investors pile into defensive stocks and safe haven assets to hedge against risks and volatility of the market. While gold is deemed as a safe haven asset, it failed to impress investors ever since the rate-hike spree began to hammer the financial markets. On the other hand, safe haven stocks such as defensive companies operating in evergreen sectors posted strong performance in 2022. An important thing to note here is that while billionaire investors showed an increased interest in safe haven and defensive stocks amid recession fears, many of the notable companies that are deemed defensive had been receiving love from billionaire hedge funds since way before the topic of recession started making headlines. Some examples of such solid stocks are Johnson & Johnson, Coca Cola and UnitedHealth. These stocks have been popular among the elite hedge funds tracked by Insider Monkey for years. These companies not only pay consistent dividends, they also have organic growth catalysts and products that are apparently safe from recession environment.
Despite positive data and a rally in stocks investors have been wary of going all in in the stock market. However, they are putting money in defensive ETFs. A WSJ report quoted Matthew Bartolini, head of SPDR Americas Research at State Street, who said:
“There’s been a lack of expression of risk during this market rally. There hasn’t been a lot of conviction, and where there is, it’s mainly been into areas of the market you would consider defensive.”
Defensive Stocks in Non-Recessionary Environment?
When beginner investors make an effort to find defensive stocks, they often tend to focus on metrics like beta and the nature of industries. But data shows that low beta stocks are not always undervalued and one must pay attention to other metrics while choosing defensive plays. For example, when the stock market began to rally in 2023, defensive stocks fell, and their valuations became attractive. Even though the economy is coming out of recession risks, these defensive companies with strong fundamentals and great valuations are still attractive and could reward long-term investors who aren’t just looking for defensive stocks in panic to protect them from the next recession.
“Looking at the valuation of each of the conventionally defensive sectors, we see that the utilities and real estate segments as a whole are trading on a multiple of forecast earnings around 2 points higher than their long-term average. The utilities stocks in the low beta group on average are currently trading at a multiple of 19 times earnings, and the real estate and food & beverage segments are trading at an average of 30 and 21 times earnings, respectively. When we think about investing defensively, risk measures are not enough. Valuation is also important, as are measures of financial strength, growth capability, or other measures of company quality. And the individual assessment of each stock is also not enough. Consideration of the interaction of stocks with one another (correlation) matters, too.”
Despite the changing nature of market conditions, billionaire investors almost always maintain exposure to defensive stocks operating in industries like consumer staples, healthcare, utilities, energy, etc. The reason behind this is simple. Most of the notable defensive companies have stable, mature businesses. When financial markets get choppy and storms gather, defensive companies don’t waver. Asset management firm Robeco in a report mentioned that during the period between January 1929 to May 2023, defensive stocks were less volatile and had a lower risk profile when compare to cyclical stocks. The report said that defensive stocks (with beta value of 0.75) “respond less to market movements compared to cyclical stocks with a higher beta of 1.27. This lower sensitivity makes defensive stocks an attractive option for investors seeking to mitigate their exposure to market fluctuations."
Safe Haven Stocks Billionaires Are Loading Up On
Our Methodology
For this article, we first scanned the DEF - Invesco Defensive Equity ETF and listed all its holdings. We then sorted these holdings using the number of billionaires having stakes in each of these stocks. We used Insider Monkey’s database of stocks popular among billionaires to find the number of billionaires having stakes in each of these equities. We then picked 10 of these defensive companies with the highest number of billionaire investors as of the end of the first quarter of 2023.
With an impeccable dividend growth record and growth catalysts, PepsiCo, Inc. (NYSE:PEP) is one of the notable safe haven stocks billionaire hedge funds managers like. Insider Monkey’s proprietary database shows that 17 hedge funds led by billionaires had stakes in PepsiCo, Inc. (NYSE:PEP) as of the end of the first quarter. Some notable billionaires having stakes in PepsiCo, Inc. (NYSE:PEP) are Ray Dalio and Donald Yacktman.
Medical devices company Boston Scientific Corporation (NYSE:BSX) ranks 9th in our list of the best safe haven stocks billionaires are loading up on. In April the company posted stellar Q1 results. Boston Scientific Corporation (NYSE:BSX)’s adjusted EPS in the period came in at $0.47, beating estimates by $0.04. Revenue in the quarter jumped 11.9% year over year to $3.39 billion, surpassing estimates by $230 million.
In May Boston Scientific Corporation (NYSE:BSX) cancelled its plan to buy a majority stake in the publicly listed Korean medical device maker M.I.Tech for $230 million amid regulatory concerns.
Off-price retailer The TJX Companies, Inc. (NYSE:TJX) shares have gained about 9% year to date.
As of the end of the first quarter, 17 hedge funds led by billionaires held stakes in The TJX Companies, Inc. (NYSE:TJX) according to Insider Monkey’s database. Some notable billionaires piled into The TJX Companies, Inc. (NYSE:TJX) include Ken Griffin, DE Shaw, Andreas Halvorsen and Cliff Asness.
Last month, The TJX Companies, Inc. (NYSE:TJX) declared a quarterly dividend of $0.3325 per share.
As of the end of the first quarter, 73 hedge funds tracked by Insider Monkey had stakes in The TJX Companies, Inc. (NYSE:TJX).
Artisan Global Equity Fund made the following comment about The TJX Companies, Inc. (NYSE:TJX) in its Q4 2022 investor letter:
“Also, shares of The TJX Companies, Inc. (NYSE:TJX), an off-price retailer of apparel and home goods across North America, Europe and Australia, rose on strong Black Friday sales and market share gains as shoppers searched for deals in physical stores. The company showed that it is maintaining margins and beating earnings estimates on strong sales and by selectively raising prices. TJX’s business model is to sell brand name and designer merchandise in limited quantities at every day discounted prices in stores with flexible, low-cost layouts. Its strategy is to tap into shoppers’ psychological need to “treasure hunt,” as the company describes it, to find unique, branded items at deep discounts. TJX buyers opportunistically purchase merchandise from vendors at deep discounts to keep the cost of goods low for stores. As the largest off-price retailer, the company has used its channel power to its advantage in recent months to gain steep discounts on merchandise as other retailers struggle to clear their inventory. We appreciate the company’s inventory management and pricing prowess. This holding is an example of our broad universe of companies that we consider for the portfolio and one that we believe is well-positioned for the current market environment.”
Colgate-Palmolive Company (NYSE:CL) was one of the most sought-after dividend stocks when the stock markets started to get hammered amid inflation and rate hikes. That’s because Colgate-Palmolive Company (NYSE:CL) is operating in the consumer defensive space and has increased its dividend consistently for 60 years.
Insider Monkey’s database of billionaires' stock holdings shows that 18 billionaires had stakes in Colgate-Palmolive Company (NYSE:CL) as of the end of March. Overall, 55 hedge funds tracked by Insider Monkey were long Colgate-Palmolive Company (NYSE:CL). In May, Morgan Stanley reiterated its Overweight rating on Colgate-Palmolive Company (NYSE:CL) after the company’s strong earnings report. Morgan Stanley also upped its price target for Colgate-Palmolive Company (NYSE:CL) to $89 from $82.
Third Point Management made the following comment about Colgate-Palmolive Company (NYSE:CL) in its Q1 2023 investor letter:
“Existing positions in LVMH, Disney and Microsoft gained while FIS, Bath & Body Works, and Colgate-Palmolive Company (NYSE:CL) posted losses after their management teams lowered 2023 guidance despite reporting solid quarterly results. FIS and Colgate have both since “beat and raised” this guidance, indicating that many management teams are adopting very conservative tones in this uncertain macro environment.”
Health insurance company Elevance Health, Inc. (NYSE:ELV) ranks 6th in our list of the best safe haven stocks billionaires are loading up on. Elevance Health, Inc. (NYSE:ELV) was owned by 19 billionaire hedge fund managers as of the end of the first quarter of 2023, according to Insider Monkey.
In April, Morgan Stanley upgraded Elevance Health, Inc. (NYSE:ELV) to Overweight from In Line. The firm likes Elevance Health, Inc. (NYSE:ELV)’s latest acquisition of BioPlus.
BioPlus, which connects payors and providers of specialty pharmaceuticals for patients with complex medical needs, was acquired by Elevance Health, Inc. (NYSE:ELV) as part of its CarepathRx acquisition in February.
Madison Investors Fund made the following comment about Elevance Health, Inc. (NYSE:ELV) in its second quarter 2023 investor letter:
“We purchased Elevance Health, Inc. (NYSE:ELV) and trimmed Marsh & McLennan and Arch Capital. Elevance is the largest for-profit Blue Cross Blue Shield plan in the country, supporting the largest domestic membership base across the managed care industry. While national scale is important, local scale is critical as well, given the localized nature of healthcare delivery. Elevance scores well on both fronts, giving it strong bargaining power with providers, lower customer acquisition costs, deep population health data and analytics, and the ability to offer attractive health benefit packages. All this combines to create a formidable moat for its business.
