The fear trade worked very well this month. While October has been a great month for investors, it has been even better for those who played it safe.
The biggest winning sectors so far this month were telecoms and consumer staples, as these two defensive groups have significantly outperformed the overall market. The SPDR Consumer Staple (XLP) is up a 6.4% so far this month, while the iShares Telecommunication (IYZ) is up 5.2%.
But that performance is going to fall back to earth in November. The reasons for the outperformance were fairly obvious at the beginning of October, traditionally a tough month for investors. (Some of the largest market declines have happen in October.)
In addition, investors were faced with the debt ceiling debate that was far from being resolved at the start of the month. No wonder market participants gravitated to defensive issues like consumer staples and telecom.
Now, with those issues behind us, look for a more aggressive posture to be taken in November. You’ll want to sell those blue-chip stocks and look for beta — stocks that are more volatile than the rest of the market — for the remainder of the year.
A year-end rally is likely, with little in the way of headwinds. There will be no taper talk until at least next year. As such, bond yields will drift lower … further enticing the risk on trade.
Here are three defensive blue-chip stocks to jettison from your portfolio.