Are There Stocks That Grow My Money Even When the Market Shakes? [Weekend Money]

Healthcare, Utilities, and Telecommunications: Traditional Defensive Sectors
Dividend Stocks and Financials See Overconcentration... Technology High-Dividend ETFs Offer Alternatives
Covered Call ETFs Cushion Volatility When Markets Move Sideways

As volatility in the stock market has increased recently, there is growing interest in defensive stocks with solid earnings. Analysts in the securities industry suggest that even within the category of defensive stocks, investment strategies should vary depending on whether the focus is on earnings stability that can withstand a recession, securing cash flow through dividends, or minimizing share price declines.

Defensive Stocks: Decide What to Defend Against First

According to Shinhan Investment Corp. on June 12, there has been a notable influx of funds in the domestic ETF (exchange-traded fund) market targeting "semiconductors" and a "KOSDAQ rebound." As of the closing price on June 9, the ETFs with the highest weekly net inflows among domestically listed ETFs included TIGER 200 IT, HANARO Fn K-Semiconductor, KODEX KOSDAQ150 Leverage, KODEX 200, and KODEX KOSDAQ150.

In a volatile market, dividend stocks and covered call ETFs are mentioned as means to secure cash flow and respond to flat or declining markets. A covered call ETF is a product that forgoes some of the profits that could be made if the share price rises sharply, in exchange for which it pays out the premium to investors, functioning similarly to a dividend.

Park Uyeol, a researcher at Shinhan Investment Corp., explained, "There are various ways to define defensive stocks because it depends on the perspective of what risk is being defended against," adding, "Regardless of the reason, if a company has solid earnings, it can be categorized as a defensive stock in that context." The reason healthcare, utilities, telecommunications, and consumer staples are considered traditional defensive sectors is because they have demand that is hard to reduce even during economic downturns.

However, sectors with stable earnings and stocks with less volatile share prices do not always coincide. Finding companies whose sales hold up even in a recession is a different strategy from actually reducing share price declines. If investors want to defend specifically against share price drops, they need to consider not just the sector name, but also whether its stocks are less volatile than the overall market.

Avoiding Overconcentration in Dividend Stocks

Dividend stocks are also considered representative defensive investment options. Companies with stable cash flows have greater capacity for dividends, and investors place a premium on recurring dividend payments.

However, high-dividend ETFs structurally tend to be biased toward certain sectors. Early-stage growth companies focus on reinvestment rather than dividends, while mature industries with limited growth potential tend to have a greater capacity to return value to shareholders. Park pointed out, "This is why sectors in the later stages of the corporate life cycle, such as banks, account for the majority of holdings in dividend stock ETFs."

As alternatives to avoid such concentration, technology high-dividend ETFs and covered call ETFs are being discussed. Technology high-dividend ETFs select companies that pay dividends within the growth sectors.

Park analyzed, "The covered call strategy is effective when the market is slightly declining or moving sideways," adding, "Recently introduced covered call ETFs have a structure that limits the proportion of call options sold, leaving room for upside potential." This means that investors do not forgo all the upside that comes when share prices rise significantly, but leave some room for growth. When the market rallies strongly, these ETFs may underperform regular ETFs, but when the market is flat or slightly down, they can help cushion losses.

Not All Healthcare Stocks Are the Same Kind of Defensive

Even within healthcare, a traditional defensive sector, there are clear differences when looking closer. Large pharmaceutical companies can expect stable recurring revenue, but biotech firms' share prices are heavily influenced by new drug development outcomes and expectations for future earnings. Park said, "If you break down the healthcare sector from a defensive stock perspective, there is a huge difference between the big pharma segment, which generates stable recurring revenue, and biotech companies, which rely on new drug development."

He noted, "Recently, volatility in the K-Bio sector has been increasing, with indiscriminate declines affecting not only biotech but also pharmaceuticals, life sciences, equipment, and services." Especially since healthcare accounts for 36% of the KOSDAQ150, the supply and demand dynamics of the biotech sector may be influenced more by the KOSDAQ ETF than by individual biotech ETFs.

Park added, "Investors expecting a biotech rebound should pay attention to the KOSDAQ index," explaining, "Despite improvements in 12-month forward earnings, share prices have fallen together, pushing the price-earnings ratio down to the levels seen at the start of the year and causing a sharp increase in trading volume."

This content was produced with the assistance of AI translation services.