Problems at work

The most defensive types of Blue Chips during Covid-19

Christopher Ng
Christopher Ng

The  Friday 13th 2020 panic is over, so it is time to regain our composure and look into how the markets have performed during the crisis. So I went back to the Bloomberg terminal at Lee Kong Chian library.

I did some quick and dirty back-tests to see whether we are indeed entering a new economic era dominated by a new set of investing factors for making investment decisions. Doing this matters because the event has shaken my confidence. The Early Retirement Masterclass (ERM) community was also waiting for someone to bring some semblance of order into the market madness.

The back-tests were designed differently from the past.

This time around, I was constrained by a small timeline – 1st January 2020 to 11th March 2020. Because the time we have is so short, I have to tell Bloomberg to rebalance and create a new portfolio every-day. We also split the STI components (30 stocks) into three parts, comparing only the performance of stocks which are top-10 and bottom-10  for a particular factor. We represent this under the “Low Factor” and “High Factor” columns.

The objective is to see which factors did better during an unprecedented market downturn.

Here are my results:

Click image to enlarge

The first number to consider is the baseline performance of the STI. The return was dismal with a plunge of 59.82% (annualised). 

Market Capitalisation

To see whether market capitalisation plays a role in better performance in a severe market downturn, we compared the performance between a portfolio consisting of the ten biggest stocks in the STI versus that containing ten of the smallest stocks.  From the table, under Market Capitalisation, the collection with the smallest stocks under low factor return lost an annualised -58.31% whereas the largest companies returned -60.74%. There is a very slight bias towards smaller blue-chips at the moment.

But, as the difference was only 2.42%, we can conclude that size did not play a significant role in this downturn.

Dividend Yield

Dividends did not play such a valuable role when markets take such a huge hit.

Using 12-month trailing dividend yields as a measurement, we find that the stocks with the higher yields did slightly worse with a difference of 4.61%. While yield-based strategies tend to work in the past, a downturn like this would see yield-based investment approaches punished in the current investment climate.


The Price Earnings Ratio and the Price to Book Ratio represented how cheap the stocks are.

In this downturn, if you have picked stocks based on how affordable they are, you would be punished severely by the markets. A low P/E combination did 13.83% worse than a high P/E combination. A small PB ratio portfolio did even worse with a performance gap of 25.97%.

In a market dominated by bad news, bargain hunting through value factors can be a bad strategy to employ, and you need to think twice before you double down on any approach that emphasises the tenets of value investing this downturn. The market climate needs to change before value investing will work again.


The profit margin factor remains a bright spark in this challenging market, with the more profitable third of STI companies doing 34.25% better than those with the lowest margins with about the same downside risk.

This realisation gives us some hope that some factors would still work in a coronavirus outbreak.


Growth is a mixed bag during the crisis. If you measure growth based on dividends growth over three years, you would have given yourself a disadvantage to the tune of 10.82%. But choosing companies with improving margins would provide a slight advantage of 3.69%.

From these numbers, we can conclude that hunting for growth might not be such a good idea in a bear market. Still, growth strategies do not do as badly as value strategies in times like this.


Another bright spark is low beta companies. Companies with a historically low beta during the past year continue to be defensive in a downturn providing 32.05% advantage, and this comes with lower downside risk.

So we know that during a downturn, we can choose small beta counters when picking stocks in a bear market. 


Finally, stocks that have been advancing with more significant momentum for the past 180 days seem to fare better in a downturn. Choosing blue-chip counters with higher momentum as represented by the 180-day Relative Strength Indicator can result in a 45.3% advantage compared to those with the lowest momentum. Higher momentum blue-chips also comes with lower downside risk.

We should not ignore technical indicators in the face of a downturn, such as the one we are in right now.

Performing the exercise above gives us some clarity as to what changes when an economic era ends, and a new one begins. In times like this, models we have built in the past may no longer be relevant in the present. Given the small amount of data-set, we can at least console ourselves that profitable companies continue to thrive in this economic era. Also choosing stocks that historically do not move along very much with the markets continue to go down much less when markets drop. Finally, technical analysts would be happy to know that stocks exhibiting positive momentum six months into the past continue to fare well relative to the markets.

Please be careful when building portfolios based on these insights. If we stick to the factors that will improve our chances of surviving the downturn, we may be giving up more significant gains when markets do recover. 

In the ERM program, we will still conduct 10-year back-tests before we shortlist a strategy for the next batch of students.  

Christopher Ng
Christopher Ng
    Juris Doctor(Cum Laude) Bachelor in Engineering from NUS (1st Class Honours) Masters in Applied Finance also from NUS. CAIA, FRM qualifications and passed all three CFA examinations. I have recently completed my Juris Doctor and have been called to the Singapore Bar. For the past 15 years I was an IT manager and I have worked in multinationals, financial exchanges, trade unions and even a government agency. I started my career as an AS/400 administrator and moved on to manage IT projects and operations. Through my personal savings and investments, I earned my financial independence at age 39 after my investment income started to exceed my monthly take home pay. One of my first acts upon retirement is to go back to Law School to reinvent myself as a legal professional. I am likely to be in the practice of corporate litigation. My three books on Personal Finance explain the processes by which I attained my financial independence. Growing your Tree of Prosperity was a local Straits Times bestseller in 2005. I was featured in Me and My Money sections in the Sunday Times twice. I also play the role of a husband and a father.
Read These Next

1 thought on “The most defensive types of Blue Chips during Covid-19”

Leave a Comment