The Ultimate Crash Test: Safe Stocks For Uncertain Times

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Are there comparatively safe stocks? Did the crash test and examined the price development of eleven stock sectors during four stock market crashes. The results refute some of the recommendations made by banks – and confirm an old stock market adage: “People always eat.” When prices plummet on the stock exchanges, many investors fear a crash. Asset managers and banks like to promote so-called “defensive stocks” in such market phases. They are said to hold up better than cyclical industries such as the automotive and chemical sectors during price downturns. As defensive stocks, pharmaceutical, technology, food and telecom stocks are usually on the recommendation lists of financial institutions. Energy and water utilities are also touted as comparatively safe stocks. But is it really that simple? Are some sectors actually much more resilient than others when prices crash on the stock markets?


Virtually all stock sectors lost money during the four stock market crashes. That’s no surprise. Because stocks that offer as much security as overnight money, fixed-term deposits and  government bonds do not exist. Stocks are risky securities whose prices fluctuate. On the other hand, investors usually achieve a higher return with them than with investments, which are largely risk-free. However, there are segments within the equities asset class that have been more stable than others in the past. The companies in the food industry performed best by far. They were comparatively safe stocks on all of the examined markets during each of the four stock market crashes . The losses in the USA and on the world stock market were particularly low for many. The health sector also remained relatively stable. However, the losses were significantly higher than those of the food industry. In contrast, investors with technology stocks were shipwrecked during the price crashes. Telecom stocks didn’t cut a good figure either. In contrast to the other markets, real estate stocks in the eurozone posted the lowest losses on average. This sector was the only one to achieve positive returns during a stock market crash. The last two places went to finance and information technology (IT) in all markets. On average, they recorded the highest losses during the price crashes on the world stock market.


Only the food sector in the USA performed clearly better than the world stock market as measured by the MSCI World during all four stock market crashes. However, investors who had invested in the food industry had to survive two additional price drops while the global stock market remained largely stable. That was the case at the beginning of the new millennium (-25 percent) and in spring 2018 (-21 percent). These so-called drawdowns show that it is generally not a good idea to concentrate the equity portion of a portfolio on a supposedly stable industry. A solid diversification remains the trump card for investments.

The Eurozone: The real estate sector in first place

In the eurozone, too, the food and health sectors offered relatively safe stocks compared to the global stock market during the four stock market crashes.

But resilience was nowhere near as pronounced as in the US and the global equity market. The prices of the food and health sector fell much more sharply in the euro area. The safest stocks were also not the food companies. On average, the losses in real estate stocks were the lowest. They went against the trend by 18 percent during the internet crash at the beginning of the new millennium. However, in the financial crisis of 2008, triggered by unprecedented excesses in the granting of home loans in the US, investors held the real estate industry in the euro area in kinship. The sector lost three quarters of its value- significantly more than the world stock market. At the end of 2016, property stocks from countries in the European Monetary Union posted a loss of a good 17 percent. At the same time, the world stock market rose.


The pattern on the UK stock exchange is similar to that on the other stock markets. Food, in this case the beverage industry, and health care companies were relatively safe stocks. Second place went to utilities, who lost an average of only 21 percent in value during all four stock market crashes. In the eurozone, however, this sector hardly outperformed the world equity market. However, it is also easy to observe in Great Britain the dangers that investors expose themselves to who concentrate their portfolios too much on a supposedly crash-resistant sector from a single currency area: The prices of the British beverage industry, utilities and also those of the health sector fluctuated considerably beyond the four major stock market crashes on the world stock market. In the spring of 2000, all three sectors lost more than 20 percent while the world stock market was largely stable. British utilities also lost around 36 percent of their value between 2015 and 2018, and the health sector also fell under the wheels.


If one also includes the price drops that individual industries suffered beyond the four stock market crashes on the world stock market, the global food sector was the most stable during the period under review. For investors who want to add these comparatively safe stocks to their portfolio, the question arises as to which is the optimal weighting. The more food stocks that are added to the portfolio, the higher the average annual return because the food sector achieved higher returns than the MSCI World Index during the period under review. At the same time, volatility and price losses are falling during the four stock market crashes on the global stock market. From a food share proportion of more than 30 percent, the additional effects achieved become significantly smaller. Meanwhile, the extent of the price drops beyond the four major stock market crashes is increasing.

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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