I’d argue that there are a number of dynamics at play in the investing world right now that should probably change. One of the key dynamics I’m focusing on is the concept of capital preservation versus capital appreciation.
Most investors in this market are on the lookout for maximum gains. Finding stocks that can grow faster than the overall market (and merit higher multiples than the overall indices) has been a winning strategy for a number of years. However, if we do see multiple contraction on the horizon, investors who have taken a more defensive position within their portfolio may outperform.
I’m in the latter camp, as I see the likelihood of outsized volatility on the horizon increasing. With that in mind, here are three of the top defensive TSX stocks I’m thinking about holding as a way to hedge against this potential upcoming volatility.
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Agnico Eagle
Most investors are well aware that gold and other precious metals are viewed as a market hedge. For those looking for outsized exposure to the rising value of this yellow metal, Agnico Eagle (TSX: AEM) remains one of my top picks to consider right now.
Agnico has a high-quality portfolio of mining assets, benefiting both from production growth and rising gold prices in recent years. In fact, this stock is up more than 250% over the past two years at the time of writing. That’s better than many of the top growth stocks in the market, at a time when valuations appear to be dropping for some tech stocks.
Those looking for a true market hedge, and a company with the potential to actually increase at a time when other stocks are falling, can certainly own AEM stock through this coming cycle.
Enbridge
Shifting to a more dividend-heavy stock, Enbridge (TSX: ENB) continues to be one of my top picks for those looking for portfolio ballast right now.
The company’s incredible network of oil and gas pipelines spanning North America is impressive, and drives the vast majority of its revenue. And while Enbridge has vertically integrated into other complimentary business lines in recent years, this will remain the key growth driver for the company moving forward.
With pipeline-friendly administrations in Canada and the U.S., the potential for new pipelines to be approved is higher than it has been in a long time. And even without such a growth catalyst materializing, the company’s surging cash flow and stronger balance sheet (thanks to balance sheet deleveraging) makes this 5.6%-yielding stock one worth buying right now, in my view.
iShares 20+ Year Treasury Bond ETF
The last pick on my list isn’t a company at all, but an exchange traded fund (ETF) tracking longer-duration bonds. The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) is an excellent option to consider for those who see additional upside ahead.
This ETF tracks a range of U.S. Treasury bonds spanning 20-plus years in duration. Now, there is some inflation-related risk involved with owning this ETF, which is clearly evidenced in this ETF’s much lower price since 2021 levels.
That said, I’m of the view that longer-duration interest rates are likely to come down, due to a variety of factors. One of the key factors I think could drive this downside in yields is market weakness, with investors rotating into places of safety to hide out and wait for a market recovery.
For those looking to hedge their portfolios and add some additional defensive exposure right now, this is the ETF I’d pick as a top way to do so right now.
