What characterizes defensive assets in finance?

Defensive assets are characterized by stable earnings and typically have a beta coefficient of less than 1. This means that their price movements are less volatile compared to the overall market. Defensive assets are often sought after during economic downturns or turbulent market conditions because they tend to be stable and less vulnerable to fluctuations in the market. Examples of defensive assets include utilities, consumer staples, and healthcare stocks, which provide essential products and services regardless of the economic environment.

The beta value reflects the sensitivity of an asset's returns to market returns; a beta less than 1 indicates that the asset is less volatile than the market. Therefore, investors often consider these assets to be safer investments, providing steady income and lower risk, which is particularly appealing during uncertain times.

Higher volatility, as found in assets with a beta greater than 1, indicates increased risk and is often preferred by investors seeking growth rather than stability, which contradicts the nature of defensive assets. Additionally, characteristics such as high growth potential or low liquidity do not align with the primary features attributed to defensive investments.