Recession or minor retrenchment? Defensive stocks work in both, says Bernstein

Whether the U.S. economy falls into a recession or expands more slowly matters little when it comes to stock-market strategy, according to Richard Bernstein, chief executive officer of Richard Bernstein Advisors LLC. “Investors seem to spend too much time trying to ascertain the probability of a recession occurring,” Bernstein wrote in a report two days ago. A slowdown is enough to justify defensive strategies, favoring shares of companies whose sales and earnings growth is relatively stable, the report said. Playing defense has been more rewarding in the past six months than investing in shares of cyclical companies, which are more susceptible to changes in the pace of economic expansion. Makers of food, beverages, tobacco and other consumer staples are in the defensive category, along with health-care, telephone and utility stocks. Companies reliant on consumers' discretionary income join energy and raw-material producers, industrial companies and technology providers as cyclicals. “We have been defensively positioned in our funds for some time now,” Bernstein wrote in the report, posted on his website. He runs two mutual funds for Eaton Vance Corp. as well as separately managed accounts. Bernstein, based in New York, served as Merrill Lynch & Co.'s chief investment strategist before going on his own. --Bloomberg News--