There’s plenty to worry about in the Canadian economy right now. Beyond tariff threats, the average Canadian is struggling with the high cost of food and rent, stagnant wages, and rising unemployment—especially among younger workers.
That said, the economy isn’t the stock market. The S&P/TSX 60 held up well in 2024, but no one knows what this year will bring. If the ups and downs of your portfolio last year made you anxious, it might be time to de-risk.
A great way to do that is by allocating more to defensive stocks. In Canada, that means consumer staples—mainly grocery stores. Here’s my five-minute guide to why they deserve a spot in your portfolio.
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Why grocery stocks?
In Canada, the big three grocery chains—Loblaw (TSX:L), Metro (TSX:MRU), and Empire (TSX:EMP.A)—have taken heat for price gouging, but from an investor’s perspective, they offer stability in an otherwise uncertain market.
To understand why, you need to know the difference between staples and discretionary spending when it comes to consumer-facing companies.
Consumer staples are essential goods—things people buy no matter what, like groceries, household necessities, and personal care items. Discretionary spending, on the other hand, covers non-essential goods like electronics, travel, and luxury items, which people cut back on when times are tough.
The key difference comes down to price elasticity—a measure of how much demand for a product changes when the price goes up. Groceries are price inelastic because people still need to buy food, even if prices rise. Compare that to a new TV or a vacation—demand for those drops sharply when money gets tight.
This inelastic demand translates to less volatile earnings for grocery chains, which, in turn, makes their stock prices more stable. That’s exactly what you want in a defensive investment.
You can see this effect in action by looking at beta, a measure of a stock’s volatility compared to the overall market. A beta of one means a stock moves in line with the market, while a lower beta means it’s less volatile. Empire’s beta is 0.48. Loblaw clocks in at 0.16. Metro is the lowest at 0.07.
The takeaway? Historically, these stocks don’t swing nearly as much as the broader market, making them a good hedge against uncertainty.
Buy them all with this ETF
No need to buy shares of each grocery stock individually—you can streamline it with Global X Equal Weight Canadian Groceries & Staples Index ETF (TSX:MART).
MART holds Metro, Loblaw, and Empire, but it also includes two more prominent retailers from the consumer discretionary sector: Alimentation Couche-Tard (TSX:ATD) and Dollarama (TSX:DOL).
Alimentation Couche-Tard isn’t exactly defensive or recession-resilient. As a convenience store and fuel retailer, its business depends more on consumer mobility and discretionary spending—gasoline demand fluctuates with travel, and in-store purchases are often impulse buys.
Dollarama, however, is a textbook recession winner. When money is tight, shoppers trade down from pricier retailers to dollar stores. Case in point: Dollarama’s beta sits at 0.54, meaning it’s far less volatile than the broader market.
This ETF equally weighs all five stocks and rebalances periodically, ensuring no single company dominates the portfolio. With a reasonable 0.25% management fee, it’s an easy way to get exposure to Canada’s most essential retailers.
