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Utilities and consumer staples are referred to as defensive stocks. Companies in these sectors usually don’t suffer as much when the market experiences problems because people don’t stop using energy or eating. They are frequently used portfolio diversification and offer protection in a falling market.
However, the downside of the dampening effect of defensive stocks is that they usually fail to climb with a rising market. Just because the market is doing well, people don’t necessarily use significantly more energy or eat more food. Defensive stocks sectors do exactly what their name implies, assuming they are well run companies. These two stock sectors can be used as a basis of hedge fund investing - dependable, steadily moving stocks that prevent too much stock volatility in a portfolio. |