Benjamin Graham, widely recognised as the father of value investing, quipped that an investment operation should promise “safety of principal and an adequate return”.
In his eyes, the main purpose of investing is to grow our wealth steadily, all while keeping our investment capital safe.
However, during turbulent times such as the current COVID-19 pandemic, many companies and businesses face severe financial stress.
In light of the situation, investors might find it hard to achieve “safety of principal” when economies are convulsing and stock markets are crashing.
That’s where defensive stocks come in.
The word “defensive” here means that the company’s revenues and cash flows are less adversely impacted during a crisis than the average company.
It can also mean that a company exists in an industry with strong growth tailwinds, thus insulating it from the tough challenges faced by other industries.
Here are four defensive stocks (as highlighted by SGX) that you can consider for your portfolio.
Ascendas REIT (SGX: A17U)
Ascendas REIT, or A-REIT, is Singapore’s first and largest industrial REIT.
As of 31 March 2020, the REIT’s portfolio was valued at S$12.8 billion and comprised 197 properties across Singapore, Australia, the UK and the US.
A-REIT has chalked up a total return (i.e. inclusive of dividends) of 8% in the first half of 2020.
The REIT has plenty of defensive qualities such as a geographically diversified portfolio and a large customer base.
A-REIT has three main asset sub-classes within its portfolio — business and science parks (45%), industrial (30%) and logistics and distribution centres (25%) as of 31 March 2020.
The portfolio consists of 197 properties that serve a total of 1,490 tenants.
These tenants come from more than 20 industries, with engineering and logistics and supply chain management forming the top 2 industries at 13.6% and 12.4% of monthly gross revenue, respectively.
A-REIT largest tenant contributes only 4% of total monthly gross revenue, while the top ten tenants account for 17.3% of gross revenue.
This diversification ensures that A-REIT is well-protected from sharp revenue swings during crises.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is an Asian-focused logistics REIT.
The REIT’s portfolio consists of 145 logistics properties in a variety of Asian countries such as Singapore, Japan, China and Vietnam, with assets under management of S$8.9 billion as of 31 March 2020.
In the first half of 2020, MLT has provided a total return of 14%.
Like A-REIT, MLT is also well-diversified as it has 145 properties spread out over many countries.
The tenant base consists of 693 customers from a wide range of industries spanning retail, automobiles and healthcare.
Also, around 64.3% of MLT’s properties are multi-tenanted buildings, reducing the risk of a blow-up as compared to single-tenanted buildings.
The REIT manager also has, in place, an active portfolio rejuvenation plan.
Currently, MLT is redeveloping a logistics centre in China at an estimated cost of S$70 million and also divesting low-yielding, older assets.
These capital recycling initiatives ensure the REIT’s portfolio is kept updated and current, thereby minimizing the risks of low occupancy during a crisis.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, invests in industrial properties in Singapore and data centres worldwide.
Its portfolio comprises 87 industrial properties in Singapore and 27 data centres in the US, with total assets under management of S$5.9 billion as of 31 March 2020.
In the first half of 2020, MIT also returned a total of 14% to unitholders.
These 114 properties are from a diverse range of industrial sub-types, such as data centres, flatted factories and light industrial buildings.
MIT has a strong sponsor in Mapletree Investments Pte Ltd, which owns and manages S$55.7 billion worth of assets across the world.
The data centre portion of MIT’s portfolio are considered essential and continued operations throughout the COVID-19 pandemic.
This segment also enjoys long-term tailwinds from strong data demand arising from the digitalisation trend and work-from-home practices that businesses have employed in light of the pandemic.
Venture Corporation Limited (SGX: V03)
Venture Corporation is a global provider of technology solutions, products and services.
The group employs around 12,000 people and has offices in Southeast Asia, America and Europe.
Venture’s shares have clocked a total return of 3% in the first half of 2020.
COVID-19 did hurt Venture’s revenue and profit for the first quarter of 2020, causing a fall of 27.5% and 33.6% year on year, respectively.
However, the contract manufacturer should do well over the long-term as there are strong tailwinds in the electronics sector for the Internet of Things and artificial intelligence.
Investors should view this dip as a temporary phenomenon and look forward to better years ahead.
With share prices battered to multi-year lows, many attractive investment opportunities have emerged. In a special FREE report, we show you 3 stocks that we think will be suitable for our portfolio. Simply click here to scoop up your FREE copy… before the next stock market rally.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
