When is a defensive not a defensive?
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Article Type
Market Updates
Topic
Macro
Published
March 24, 2026
Read time
4 mins
Author
Iain Snedden
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Traditional defensives aren’t behaving defensively. As volatility rises, sectors once seen as safe havens are faltering, while unexpected areas are proving more resilient. Has the definition of a “defensive” stock fundamentally shifted? 

 

‘Flight to safety’ is the typical investor response when volatility increases and markets sell off. The age-old playbook is to buy traditional defensive low beta stocks in areas like consumer staples, healthcare and utilities to provide portfolios with some downside protection.

 

The strategy makes intuitive sense: demand for products in these sectors is relatively inelastic. Healthcare systems still need the same amount of drugs when the economy goes into a downturn and people still brush their teeth and buy bread when geopolitical shocks occur.

 

But three weeks into the current conflict in the Middle East and that playbook has not worked so far. While utilities have outperformed as expected, staples and healthcare have been two of the worst performers, outdone only by basic materials in terms of ground lost in March. Meanwhile tech and the quasi-tech communication services sectors have fared better than the broader market. Why might this be, and does it suggest investors need to rethink what a defensive stock is?

 

There are a few possible explanations for the recent dynamics. Consumer staples companies have struggled for growth over the past couple of years. After significant price rises through the COVID period and its aftermath, they have run out of room to raise prices further in the face of stretched consumers. Returning to the earlier analogy, people are still brushing their teeth and buying bread, but data suggests many have switched from named brands to supermarket own-label products to save cash. The current crisis puts the risk of inflation affecting input and freight costs back on the table for consumer staples companies, suggesting the current share price moves may signal concerns about margins being further squeezed by costs going up and an inability to pass this through to the customer.

 

Market technicals may also be contributing. After a difficult couple of years, staples stocks enjoyed a healthy start to 2026, so their poor performance in March might be a result of investors taking profits and rebalancing their portfolios. The same could apply to healthcare stocks, which enjoyed a strong finish to 2025 but have lagged so far in 2026. The rotation across markets this month has been pronounced. The materials sector, as well as Japanese and Korean markets, soared through January and February but have been among the biggest losers in March.   While these are fundamentally affected by the Middle East crisis, investor profit taking is possibly also part of the equation.  

 

If traditional defensives aren’t doing the job this time, where might investors look for shelter? Energy and defence stocks have been clear beneficiaries, for obvious reasons. More interestingly, tech has also been a clear outperformer, which is not something you would typically expect in a market downturn from a high beta sector sitting with above market valuations.

 

This might be partly attributable to the rotation noted above, as the software sub-sector endured a difficult start to the year, so perhaps this is the other side of investors rebalancing recent winners and losers.

 

However, there is also an argument to be made that tech now possesses many of the characteristics that once made traditional defensives a good place to be in uncertain times. Large tech companies have significant revenue visibility and have incredibly durable, cash generative business models. To twist the earlier analogy, companies are as unlikely to rip out their Office 365 or their cyber security subscriptions as consumers are to stop buying toothpaste or bread. These products could be considered as the staples of modern society (but ones that generate significantly higher margins and cash flows than their traditional peers). They are also less prone to physical supply-chain disruption or rises in input costs. 

 

Add in the historic levels of capex being committed to the AI buildout, which shows no sign of slowing due to geopolitical tensions. The tech sector therefore could be appealing in the current backdrop, even if some investors question valuation levels going in.      

 

This is also not the first sell-off in recent times where tech has outperformed.  During the COVID falls of H1 2020 and then in the aftermath of last year’s ‘Liberation Day’ announcements, tech outperformed – materially in the case of the former.

 

Ultimately, every sell-off is different and should be analysed on its own merits. However, the current sell-off illustrates that filling a portfolio with traditional low beta defensives may give a false allure of safety. In contrast, the business models and demand dynamics for the world’s giant tech companies, as well as their lower risk of physical disruption, suggests that investors may need to rethink what a defensive stock actually is and how to position portfolios in volatile markets.

 

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Author

Iain Snedden
Senior Investment Specialist
Iain Snedden, investment specialist, is a member of the global equities team covering ESG, income, regional and market neutral strategies. 
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