FTSE defensive shares for a market downturn

Among the sectors containing the best defensive stocks, are utilities, tobacco, pharmaceuticals, and consumer goods.

The utility sector has enjoyed a fantastic economic backdrop. These companies borrow heavily against their assets so the record low borrowing costs while steady inflation increases bills has led to record profits. Water utilities Severn Trent and United Utilities, both have steady income and dividends.

Shares in the water sector are driven on a five-year regulatory cycle. The water sector regulator Ofwat is currently in negotiations to agree the prices from April 2015 to 2020. There is still disagreement between the two parties and this creates risk for shareholders. The regulator could make the industry much less profitable by forcing it to cut prices. The final decision will come on December 12, so, if you are thinking about investing in UK water utilities, it could be a good idea to wait until after that.

SSE, National Grid and British Gas owner Centrica make up the power sector options. Shares here have been hit by political wrangling over the household energy bills, but they remain steady dividend payers for now.

The tobacco companies may be facing slowing sales in developed economies but this is being offset by price rises that the addicted customer base keep paying. The income and dividends are stable for the time being.

The pharmaceutical sector is undergoing something of a renaissance, with new drug discoveries and takeover activity all boosting the shares.

The consumer goods giants Unilever and Reckitt Benckiser have been hit by slowing sales in emerging markets. However, the shares of both companies have easily outperformed the wider FTSE 100 as people will still buy toothpaste, washing powder and washing up liquid even through a recession.

Long term investors would do well to make sure they have a balanced portfolio including some defensive options.

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FTSE defensive shares for a market downturn