KEY POINTS:
New Zealand companies are set to face increasingly challenging conditions as the economy slows down but one way investors can help to protect themselves is by choosing defensive stocks.
Goldman Sachs JBWere investment manager Mark Warminger said the size and type of industry that a company operated in could determine how well it handled a downturn.
"Traditionally as you get towards the later stage of the economic cycle the smaller companies tend to underperform as they find it harder to weather the economic challenges.
"Likewise electricity retailers and telco companies can be a good place to park your money because they have high stability and cashflows," he said.
Spicers' senior financial adviser Jeff Matthews said customers of lines company Vector were unlikely to stop paying for power, even if their finances got tighter.
"It's got to keep producing power for Aucklanders so it's not about to fall out of bed."
Fletcher Building is another company which he said had already proved itself to be very adaptable.
"People have been predicting a downturn in the property industry for years. House building has slowed but Fletcher Building has picked up its business from infrastructure work."
And his third recommendation - alcohol manufacturers such as Lion Nathan - relies on the fact that even in hard times people still like a drink.
Warminger said defensive stocks this year may also include those linked to the dairy farming sector as farmers receive a record payout for milk and those in the precious metals industry, as investors' love for gold continues.
Brook Asset Management managing director Mark Brighouse believed the key to finding defensive stocks was to search for companies with pricing power or those who are able to pass on price increases to their customers.
"There is no easy answer to that - you have to do an analysis of each company's market position and relationship with suppliers ... what they need to have is a defendable position."
But companies with businesses closely linked to household spending could struggle the most over the down-turn.
"It's been a long time since we had a squeeze on people's discretionary spending money."
Matthews said investors should look to avoid companies that were highly leveraged and carried a lot of debt. Brighouse said he did not expect the economy to have a hard landing because farmers and the Government still had money to spend.
