Defensive vs Growth Stocks: Why a Smart Portfolio Needs Both
•By Wan Mahersaham
Artikel ini juga tersedia dalam Bahasa Melayu
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Bursa Malaysia retail investors often get trapped in a false debate: "Which stocks are better - defensive like consumer staples and utility names, or growth like tech and semiconductor names?" The real answer: this is the wrong question. Long-term winning investors don't pick one - they combine both with a mix that suits their profile.
Defensive stocks provide stability and dividends when markets fall. Growth stocks provide capital appreciation when markets rise. A portfolio with only defensive names is stagnant in bull markets. A portfolio with only growth names gets wrecked in recessions or bear markets. Winners are investors who balance both.
In this article, we unpack: - Precise definitions of defensive vs growth stocks (not fuzzy jargon) - Typical sectors for both categories on Bursa Malaysia - Return and risk profiles for each category with real data - When to lean which way - timing by economic cycle and investor life stage - Suitable compositions for different investor profiles (young, mid-life, near-retirement) - Common mistakes retail investors make when mixing defensive-growth
Defensive stocks are companies whose businesses are resilient across the economic cycle - whether the economy is booming or in recession. Main characteristics:
Companies that sell daily consumer essentials: packaged food, beverages, dairy, mineral water, FMCG (fast-moving consumer goods). Brand power is the main moat - consumers stay loyal even when prices rise slightly. Growth isn't explosive, but cash flow is very predictable.
Power generators and transmission companies, natural gas suppliers, industrial gas, and water utilities. This sector is usually regulated by the government with stable tariff structures. Demand doesn't fluctuate much because they're essential services. High capex but consistent cash flow.
Private hospital operators and pharmaceutical companies. Healthcare demand is inelastic - people still seek treatment regardless of economic boom or recession. Malaysia's aging population reinforces the long-term trend.
Mobile data operators and broadband fibre providers. Subscriptions are stable - people don't cancel telco because they can't live without Internet. Just slow growth, dividend yield typically 4-6%.
Real estate trusts that mandate distribute 90% of income to unit holders. This asset class generates dividend yield 5-7% consistently. REIT diversification spans malls, hospitals, hotels, offices, industrial property.
Bursa Malaysia historical (2015-2025 estimates): - Annual capital growth: 2-6% - Dividend yield: 4-7% - Total return: 6-13% per year - Maximum drawdown (worst year): -10% to -20% (relatively protected) - Volatility (beta): 0.5-0.8
Compared with risk-free rate (MGS 10-year ~4.5%): defensive stocks yield excess returns of 2-8% per year with drawdowns far larger than deposits. But defensive stocks still outperform fixed income long-term because dividends grow each year.
Growth stocks are companies where revenue and profit grow rapidly (usually >15-25% per year) because their sectors are in a structural growth phase. Main characteristics:
OSAT players, IC design service firms, automated optical inspection equipment makers, automated test equipment, and precision cleaning for the semiconductor industry. This sector rides the global semiconductor cycle and AI demand. High margins for niche players with proprietary technology.
eGovernment platforms, payments tech firms, digital credit reporting, and B2B SaaS. Key traits: asset-light, scalable margins, network effects as customer base grows.
Solar PV manufacturers, EPC contractors for solar installation, and green data centre operators. Demand driven by Malaysia's NETR (National Energy Transition Roadmap) policy and corporate ESG commitments.
Some Malaysian pharmaceutical firms in product expansion phase (vaccines, biosimilars, OTC pharma) can fall into the growth category - with revenue growing 20%+ during specific periods.
Bursa Malaysia historical (2015-2025 estimates): - Annual capital growth: 10-30%+ (can be 100%+ in bull years) - Dividend yield: 0-2% (minimal) - Total return: 10-30%+ per year (if lucky) - Maximum drawdown: -40% to -70% (during the 2022 bear market, many tech stocks crashed 50%) - Volatility (beta): 1.2-2.0
Growth stocks offer higher upside but higher downside. Not suitable for everyone - if you can't withstand your stock falling 50% before recovering, growth isn't for you.
| Aspect | Defensive Stocks | Growth Stocks |
|---|---|---|
| Target return | Total return 6-13%/year | Total return 10-30%+ (but volatile) |
| Return composition | 70% dividend + 30% capital | 5% dividend + 95% capital |
| Volatility | Low (beta 0.5-0.8) | High (beta 1.2-2.0) |
| Bear market drawdown | -10% to -20% | -40% to -70% |
| Ideal time horizon | 5-10+ years | 5-15+ years |
| Main risks | Inflation, dividend cuts | Stretched valuation, growth slowdown |
| Typical PE ratio | 12-25x | 25-80x+ |
| Suitable investor profile | Conservative, retirees, income-focused | Aggressive, young, capital growth focused |
| In recession | Outperform (defend) | Underperform but recover stronger |
| In bull market | Underperform (laggard) | Outperform (leader) |
The stock market moves in 4 cycle phases:
Reality: cycle timing is very difficult - most investors fail. More practical: maintain consistent balance with minor tweaks based on macro signals.
A combined defensive + growth portfolio delivers a smoother return profile: - Bull years: growth lifts overall return - Bear years: defensive cushions drawdown - Sharpe ratio (return per unit risk) higher than either all-defensive or all-growth
Investors who don't panic-sell during drawdowns are the ones who win. Portfolios with defensive stocks are less likely to trigger panic selling because drawdowns are smaller. With growth, profits during bull years cover the defensive laggard.
Defensives (utility, consumer staples) and growth (tech, semiconductor) move on different drivers: - Defensive: depends on consumer spending stability - Growth: depends on innovation cycle and capex
If one sector crashes, the other may defend. This is the essence of real diversification - not just diversifying stock names, but diversifying economic drivers.
Defensives provide passive income (dividends 4-7%). Growth provides capital appreciation (capital gain). Combined = both return streams.
Portfolio example RM100,000: - RM50,000 in defensive stocks (4% yield + 4% growth) = RM4,000 dividend + ~RM2,000 capital = RM6,000 - RM50,000 in growth stocks (1% yield + 12% growth) = RM500 dividend + ~RM6,000 capital = RM6,500 - Total return RM12,500 (12.5%) with RM4,500 passive dividends per year
Below is an illustrative sector composition example - not personal investment advice or specific stock recommendations. Adjust to your own profile.
Defensive Bucket (50%): - Consumer staples - 10% - Utility / power - 10% - Healthcare / hospital operator - 10% - REIT (mall / hospital / industrial) - 10% - Tier-1 bank (quasi-defensive) - 10%
Growth Bucket (50%): - Semiconductor / OSAT - 10% - Tech equipment maker - 10% - Digital platform / eGovernment - 10% - Credit reporting / fintech - 10% - IC design services - 5% - Cash buffer - 5%
Expected return (estimates): - Defensive portion: ~9% total return (5% dividend + 4% capital) - Growth portion: ~15% total return (1% dividend + 14% capital) - Total weighted: ~12% per year (long-term)
"I want yield only" → all-in REITs and utility → stagnant portfolio for 5 years. "I want to get rich fast" → all-in tech growth → 50% drawdown when tech crashes.
Fix: balance minimum 30/70 or 70/30, not 100/0.
A penny stock at RM0.10 with PE 5x isn't defensive - that's a value trap. Real defensives are premium consumer staples at high PE but with resilient business. Quality matters more than price.
A stock that rose 500% in 6 months isn't quality growth - that's momentum speculation. Real growth is revenue growing 25% YoY for 5 years with high ROIC. See ROE vs ROA vs ROIC: 3 Real KPIs Expert Investors Track.
After 1-2 years, growth can become 70% of the portfolio (if it performs well) - your portfolio drifts from target balance. Rebalance every 6-12 months: sell some winners (growth), top up losers (defensive) to maintain target ratio.
When tech is hot, retail investors rush into all growth. When recession hits, all rush into defensives. This is buying high selling low - the opposite of what winning investors do.
Fix: stick to allocation plan, tweak minor based on macro signals.
For Muslim investors, both categories can be Shariah-compliant - but stricter screening for:
Always refer to the latest SC Shariah-Compliant Securities List before making decisions.
70-80% growth + 20-30% defensive is the common rule for young investors with 30+ year time horizons. But adjust to personal risk tolerance - if you can't sleep peacefully with your portfolio dropping 40% in a recession, reduce growth to 50-60%.
Blue chip = large, established companies, not newly listed. Defensive = resilient business. Many blue chips ARE defensive (premium consumer staples, major utilities), but some blue chips are NOT defensive (traditional banks - affected by credit cycle). There are defensives that are NOT blue chips (smaller REITs, small pharma).
You can but you must be psychologically strong - 50%+ drawdowns are reality. For new investors with RM10,000 capital, this may be emotionally overwhelming. I recommend 70/30 tilt first, increase growth allocation with experience.
REITs are defensive - the 90% distribution mandate generates stable dividends of 5-7%. But REIT growth from capital appreciation is low. Suitable for the income-focused portion.
Banks are cyclical-defensive (mid-way). Profit depends on credit cycle (difficult in recession, profitable in expansion). Major Malaysian banks treat as stable cyclical - not pure defensive like utility.
US tech sector has global scale, large R&D budget, network effects. Growth is stronger and more sustainable.
MY tech sector (OSAT, payments) has niche specialization, smaller TAM. Growth can be impressive percentage-wise but absolute size is much smaller.
For geographic diversification, think 70% MY + 30% US tech.
Every 6-12 months, or when allocation drifts >5-10% from target. Example: 50/50 target becomes 60/40 = rebalance. Tax-efficient rebalancing: use new contributions to top up the underweight portion instead of selling winners.
Yes - but they fall less. Example, 2020 COVID crash: - KLCI overall: -22% peak-to-trough - Consumer staples: -10% (defended well) - Telco: -18% - Aviation: -50% (cyclical disaster) - Tech / OSAT: -28% (growth tech, hit hard but recovered fast)
Not a magic shield - but better protection.
Smart investors don't choose between defensive or growth stocks - they master combining both. Defensive sectors (consumer staples, utilities, healthcare, REITs) provide stability and income, while growth sectors (semiconductors, tech, fintech, renewable energy) provide capital appreciation. The ideal composition depends on your age, time horizon, and risk tolerance - but a minimum 30/70 split is a healthy base case for almost all investors. Rebalance every 6-12 months to maintain target ratio, and avoid overconcentration in one category.
Before building a defensive-growth portfolio, ensure you have an active trading account with access to Bursa Malaysia stocks and overseas markets.
To start investing in Bursa Malaysia and overseas markets like the US and Hong Kong, you need a CDS account - register your CDS account with Mahersaham here.
For stock investing fundamentals including defensive-growth portfolio construction and risk management strategies, get our free stock investing fundamentals ebook.