Thanks to booming artificial intelligence companies (AI), equity markets across the world have been rallying throughout the past year. But with concerns that the record highs are concentrated in only a handful of stocks, having a diversified portfolio that can remain resilient in a variety of situations is still a priority.
In this article, we highlight five funds with a high allocation to the consumer defensive sector: that means companies that manufacture food, beverages, household and personal products, packaging, or tobacco – things people want to buy regardless of the investing weather. It also includes education and training services companies.
As Morningstar’s manager research analyst David Carey explained in a recent US version of this article, these stocks may not be as exciting as some high-growth technology companies, but "consumer defensive companies tend to have stable cash flows that can act as a ballast when investors’ optimism wanes and the economy slows."
These are often not the stocks that investor associate with excessive returns. Indeed, Carey says consumer defensive stocks can often get left behind when optimism is high. For example, in the US, the Morningstar US Market Index grew 49.8% from October 2022 through May 2024, while the Morningstar US Consumer Defensive Index only grew 24.7%.
Why Should I Consider Consumer Defensive Stocks?
While this article focuses on the consumer defensive sector, healthcare and utilities are sectors with defensive qualities. In general, the stocks in these industries have betas of less than 1.
We have picked out the five Morningstar Medalist-Rated funds with the highest allocation to consumer defensive stocks. Each could enjoy a reversal when such stocks are back in favour.
Five Consumer Defensive Funds
Barings Global Agriculture
• Morningstar Medalist Rating: Silver
• Morningstar Category: Sector Equity Agriculture
• Consumer Defensive Exposure: 41.55%
Barings Global Agriculture, managed by Clive Burstow, James Govan and Piers Aldred, invests in equity and equity related securities in the agricultural sector. The fund's exposure to consumer defensive stocks is 41.55% – slightly higher than its category at 40.85%.
Overall, the fund holds 30 equities (and four other holdings), of which the largest stock is Corteva (CTVA) with a 9.21% portfolio weight. The largest consumer defensive stock is Lamb Weston (LW) with a 5.85% allocation.
The actively managed Barings Global Agriculture fund is down 10.90% over the past year, falling further than the average fund in the equity agriculture category, which fell 4.90%. The £87.9 million fund has lost 5.72% year to date, while the average fund in its category is down 4.11%. Over the past five years, the Barings fund has climbed 4.04%, compared to the 0.25% gain for the category.
Trojan Global Income
• Morningstar Medalist Rating: Silver
• Morningstar Category: Global Equity Income
• Consumer Defensive Exposure: 35.91%
James Harries and Tomasz Boniek run Trojan Global Income, which invests globally to achieve income with the potential for capital growth in the medium term. The fund's exposure to consumer defensive is 35.91% – significantly higher than its category, which on average allocates 11.75% to the sector. The largest stock among the 32 equities is the consumer defensive giant Unilever (ULVR) and it takes up 5.29% of the portfolio.
The £643.2 million Trojan Global Income rose 4.80% over the past year. The gain on the actively managed fund was shy of the 13.96% gain on the average fund in the global equity income category. Year to date, the Troy Asset Management fund is up 0.04%, while the average fund in its category is up 6.26%. Over the past five years, the fund has climbed 4.05%, compared to the 7.07% gain for the category.
WS Lindsell Train UK Equity
• Morningstar Medalist Rating: Bronze
• Morningstar Category: UK Large-Cap Equity
• Consumer Defensive Exposure: 35.14%
Nick Train's Lindsell Train UK Equity aims to deliver capital and income growth by investing in UK stocks, and to beat the FTSE All-Share over five years. And while funds in the UK large-cap equity category on average invests 13.08% in consumer defensive stocks, Train's fund holds 35.14% in this sector – and like Trojan Global Income, the largest holding is Unilever with a 9.99% portfolio weighting. Unilever is one of 19 equity holdings in the fund.
Over the past year, Lindsell Train UK Equity rose 2.50%, while the average UK large-cap equity fund gained 16.73%. The £3.3 billion fund has climbed 0.28% year to date, underperforming the average fund in its category, which rose 7.32%. Over the past five years, the Lindsell Train fund is up 1.49%, while the average fund in its category is up 4.65%.
Fundsmith Equity
• Morningstar Medalist Rating: Silver
• Morningstar Category: Global Large-Cap Growth Equity
• Consumer Defensive Exposure: 31.16%
The UK's largest fund, Terry Smith's Fundsmith Equity is also among the funds with the largest allocation to consumer defensive stocks. According to its prospectus, the fund's investment objective is to achieve long term growth by investing in global equities, and to be a long-term investor in these stocks. The fund's allocation to the consumer defensive sector is significantly higher than its category, at 31.16% versus the 6.72% average for global large-cap growth equity funds. L'Oreal (OR) is the largest consumer defensive stock in the 27-stock portfolio, and the fund's third-largest holding with 7.06%. The biggest portfolio weighting however belongs to Microsoft (MSFT) at 9.41%.
The £24.7 billion Fundsmith Equity rose 14.21% over the past year. The gain on the actively managed fund was shy of the 19.02% gain on the average fund in the global large-cap growth equity category. Year to date, the Fundsmith fund is up 8.38%, while the average fund in its category is up 9.89%. Over the past five years, the fund has climbed 8.32%, compared to the 8.53% gain for the category.
IFSL Evenlode Income
• Morningstar Medalist Rating: Silver
• Morningstar Category: UK Equity Income
• Consumer Defensive Exposure: 26.87%
The objective of IFSL Evenlode Income, run by Hugh Yarrow and Ben Peters, is to provide income and capital growth with an emphasis on income through investing in UK companies. The fund's exposure to consumer defensive stocks is 26.87%, versus the category average of 12.41%. Also this 38-stock fund is heavily invested in Unilever with a 7.91% weighting – but four of its top five stocks belong to the category. This includes Diageo (DGE), Reckitt Benckiser (RKT) and Bunzl (BNZL).
The actively managed Evenlode Income is up 8.16% over the past year, underperforming the average fund in the UK equity income category, which rose 18.45%. The £3.2 billion fund has gained 1.33% year to date, while the average fund in its category is up 7.97%. Over the past five years, the Evenlode fund has climbed 3.65%, compared to the 4.75% gain for the category.
This article was generated with the help of automation and reviewed by Morningstar editors
