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Market volatility spikes in the wake of the COVID-19 crisis caused many investors to consider how they might build more resilient equity portfolios. In Active Quantitative Equity (AQE), we believe defensive equities can play a key role in that effort.
Our approach to defensive equities is not limited to minimizing risk. Instead, our defensive equity strategies have a dual return and risk mandate; they seek to deliver superior risk-adjusted returns over a full market cycle. In this piece, we’ll explore our approach to defensive equities by examining what we consider to be one of the strongest defensive opportunities today: the Health Care sector.
Health Care is an excellent example of where we look to invest in defensive equities, because the sector exhibits both resiliency in times of crisis as well as consistent and stable growth and profitability during recovery periods. We’ll unpack each of these dimensions of Health Care’s potential, beginning with the sector’s performance in the current crisis.
Health Care has historically performed relatively well during times of crisis. The sector’s performance in terms of returns during the Global Financial Crisis (GFC) and the bursting of the Tech Bubble was second only to Consumer Staples — a much sought-after defensive sector (see Figure 1).