Although the FTSE 100 has made gains in recent days, the ‘summer dip’ brought fear into the minds of many investors. Indeed, even though the FTSE 100 shed only a few hundred points, some investors were concerned about the level of uncertainty and questioned whether their portfolios were defensive enough. With this in mind, here are three companies that could be classed as essential holdings for low-risk investors.
SSE
With a beta of just 0.5, SSE (LSE: SSE) could prove to be a top notch defensive play. That’s because its shares should fall by just 0.5% for every 1% fall in the wider index, which would clearly be hugely beneficial in a market downturn. Allied to that, SSE offers a dividend yield of 5.9% at present, which gives investors a very attractive level of income even if share price gains in the wider market are limited (or even negative). With shares trading on a price to earnings (P/E) ratio of just 12.5, they seem to price in the political risk of a change in regulator that could occur post-2015. As such, SSE appears to be a top defensive play.
SABMiller
The great thing about SABMiller (LSE: SAB) is its consistency. Indeed, it seems as though people across the world do not cut back on beer in times of economic distress, with SABMiller posting positive earnings growth in each of the last five years. Furthermore, the company is forecast to deliver solid earnings growth moving forward, with the bottom line set to increase by 6% this year and by 10% next year. Although shares do not offer an attractive yield (it currently stands at just 2.1%), the sheer consistency of the company’s results mean that it is likely to outperform the wider market in a downturn.
Shell
Although perhaps more cyclical than SSE or SABMiller, Shell (LSE: RDSB) is also appealing to the low-risk investor. That’s because it has a beta of just 0.8 and a yield of 4.5%, which should help to bolster portfolio performance in a downturn. Furthermore, Shell has extremely strong cash flow which means that, while the price of and demand for oil will inevitably fluctuate, the company should have sufficient resources to reinvest in the business, pay dividends and engage in share buybacks. With shares in the company trading on a P/E of just 11, they appear to be ripe for buying (just like SSE and SABMiller) for the low-risk investor.
