Monday, August 23, 2010

On the Hunt for Attractive Defensives

As the global economy continues to show signs of slowing, and risk of an economic contraction grows, we have been slowly rotating down the risk spectrum in Pinnacle portfolios. This has taken the form of reducing the overall amount of equity in portfolios, as well as some transitioning between cyclical and defensive equity sectors. Recently we’ve reduced industrials, energy, financials, materials and semiconductor sector ETFs, and replaced the exposure with utilities and consumer staples, which are considered to be countercyclical, or defensive, sectors.

As the chart below illustrates, the traditional defensive sectors are health care, consumer staples, utilities and telecom services. We currently have an overweight in health care, have been building into utilities and staples, and are taking a close look at the telecom services sector to see if it might be an attractive investment candidate. In coming days we will also be closely monitoring industries within our sectors, and possibly reducing some of the more cyclical exposure there as well. The world is constantly changing and we will continue to change with it. Right now we are on the hunt for attractive defensives in our portfolios.