But as share prices rise, where do we go from here?It hasn't been difficult to be negative of late, despite continuing market rallies. Worries dogging the UK economy have encouraged the bears to warn that a recession is imminent unless the Bank of England and the Treasury take steps to prevent a slowdown.These concerns include the fear of a concerted UK consumer-spending slowdown, as well as reports of rising levels of bad debt by many of the country's largest banks. Consumer confidence is also being hit by a significant stagnation in the housing market. These factors forced a reduction in base rates by a quarter of a point to 4.5 per cent this month.Normally at such a point in the economic cycle, investors might consider a move into the defensive sectors. Decidedly old-economy sectors - such as food retailing, food manufacturing, health care and even oil - are the obvious options. Defensive investments are traditionally the shares of companies that are well-positioned to withstand recession, usually because the goods and services they provide are essential items.
Sin stocks, such as tobacco, gambling companies and drinks producers, areoften also good defensive options.But given the old economy's recovery during the past five years, stocks in many of these sectors are already ahead. A snapshot of the picture during the past 12 months reveals that leading shares in these sectors have outperformed the FTSE 100 Index as a whole by an average of 11 per cent. In part, this outperformance may have been in anticipation of a recession, even though one has not yet technically occurred.For example, shares at SABMiller are up by 45 per cent during the past 12 months. At BAT Industries, investors have made 37 per cent, while Tesco shareholders are 29 per cent better off. Overall, the average performance of defensive sectors since last August has been 34 per cent, compared with 23 per cent from the FTSE 100.In addition, some defensive shares are beginning to show growth-stock potential. SABMiller is a traditional brewing company that is steadily expanding into emerging markets, where new-found middle classes are consuming more of its products.Similarly, the oil sector has often been seen as a safe haven within an economic storm, as consumers all need to continue to drive cars to work and so on.
cash independent.co.ukSean O'Grady is away. Some companies are accident-prone. Take Landround, a little promotions business that I have from time to time thought about bringing into the No Pain, No Gain portfolio. I am glad I resisted the temptation; it could have been a rather expensive exercise. Three times since the millennium dawned it has flattered only to deceive The shares graphically illustrate its in-and-out display.
