With markets in flux, I’m considering rebalancing some of the UK shares in my portfolio. Market uncertainty has me feeling the need to err on the side of caution and shift into more defensive stocks.
The Bank of England recently cautioned that if confidence in artificial intelligence or the US Federal Reserve weakens, a “sharp correction” could follow. Similarly, the International Monetary Fund worries that markets could be overvalued relative to fundamentals, making them vulnerable to steep drops if sentiment sours.
So I plan to reallocate around £1,000 of funds – and these are the UK shares I’m considering.
A high street staple
One company that’s always held up reasonably well is Tesco (LSE: TSCO). While supermarkets aren’t glamorous, their defensive nature appeals in rough times. In 2025, it generated a total return of about 25% with a dividend yield currently sitting around 3.2%.
While that yield is not particularly high, it’s well covered by cash and earnings with a relatively consistent payout history. As a long-time customer myself, I believe its brand strength and scale provide structural protection. People always need food and grocery shopping even in weak economic times.
Tesco has warned in the past about the risks of higher costs and competitive pressure from rivals. Intense discounting by competitors could put pressure on its margins and threaten profits. And if inflation or input costs surge further, it could squeeze its capacity to sustain dividend growth.
Still, earlier this month, it raised its full-year profit outlook following a stronger summer performance. So even as the FTSE 100 slips from all-time highs, Tesco looks solid.
Strength in diversity
The second share I’ve been eyeing for some time is F&C Investment Trust (FCIT). It’s a highly diversified investment trust that provides exposure to a wide mix of sectors globally, which adds extra defensiveness.
The trust holds about £6.5bn in assets, with top holdings leaning heavily towards the usual US tech giants like Microsoft, Apple and Nvidia. Still, it’s far more diversified than many other funds, with 14.5% in European stocks, 10.1% in emerging markets and 10.5% in private equity.
Despite this, it still carries risk tied to global equities and concentrated tech exposure. If US tech underperforms, F&C could be hurt. Plus, valuation discounts to net asset value or changes in sentiment can lead to price swings not necessarily tied to fundamentals.
It has modest net gearing of roughly 4% and a total ongoing expense of 0.45%.
One extra factor that adds credibility is its long history, dating back to 1868. Despite an average 10-year annualised return of only 6%, it appears quite resilient and tends to recover quickly from downturns.
Final thoughts
With £1,000 to reallocate, shifting some capital towards these kinds of defensive names may offer a balance between income and capital preservation. Together, they offer me exposure to a trusted UK retail brand and global diversification to smooth out market volatility.
For now, the majority of my portfolio remains in income-oriented stocks. But when markets look jittery, I think it’s worth considering defensive shares like Tesco and F&C.
