Stocks: Defense Has Been the Best Offense This Year

Last Updated Sep 9, 2011 3:38 PM EDT

It's been a lousy year for stocks but not nearly so painful if you've been playing defense in your U.S. equity portfolio -- and staying far away from financials.

The S&P 500 is off about 8 percent so far in 2011, mostly because of the financial sector. Of the 10 major sectors in the S&P 500, financials are off more than 20 percent year to date, according to S&P data. The crisis in the euro zone is largely to blame.

After financials, the industrials and materials sectors have been the worst performers, logging double-digit percent declines so far this year. Fears of a slowdown in the global economy (and a couple years of strong outperformance) have weighed heavily on these macroeconomically sensitive areas.

Here's how the major sectors have fared this year as of Sept. 8:

On the other side of the ledger, three classic defensive sectors have produced positive returns so far in 2011. Health care and consumer staples are up more than 4 percent on a price basis, while boring old utilities have gained nearly 6 percent.

If the remainder of the year plays out like the first three quarters have gone, continued weighting toward defensive sectors will be the way to go in your U.S. equity portfolio.

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    Dan Burrows, a veteran of Aol's DailyFinance, SmartMoney and MarketWatch from Dow Jones, covers the markets and economy with an eye toward investing for the long haul.