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Paying for Defense

A deeper dive into defensive equity.

Averie Thomas, Farris Shuggi, Hailey Lynch, Robert Panariello, Som Priestley
T. Rowe Price,  July 2020

Key Insights

  • Following the 2008–2009 global financial crisis, defensive equities—such as “low beta” and “high quality” stocks—became popular investments for many investors.

  • Low‑beta equities were not as defensive when valuations were high leading into sell‑offs. Expensive high‑quality equities showed more dispersion in sell‑offs.

  • We believe investors should not rely too heavily on defensive equity as a portfolio hedge, given how widely historical performance has varied based on valuations.


Traditionally, investors have expected defensive assets, including defensive equity, to provide some improvement in portfolio performance during market drawdowns. These equity styles have increased in popularity since the 2008–2009 global financial crisis, prompting us to take a closer look at the question: Are there underappreciated risks lurking in these investment approaches that investors tend to believe are relatively less volatile?

In this paper, we analyze defensive equities as an investment by focusing on two main types: low‑beta equities and high‑quality equities.

  • In section one, we show how the universe of equity assets considered to be defensive has become more crowded over time.
  • In section two, we analyze the relationship between relative valuations and performance during market drawdowns.
  • Section three applies our framework to a recent case study (the COVID‑19 pandemic).
  • Finally, the fourth section offers our thoughts on the implications of our findings for investors.

For the full report and methodology, download Paying for Defense.