Company Interview / Michael's defensive stocks to own (and what he's avoiding)

Key points:

Rising Australian rates and energy inflation driving more defensive portfolio positioning Avoids property, retail and consumer lending; prefers non‑discretionary defensives and utilities Focussed on electrification and data‑centre contractorsCautious on software and gold; sees major Australian banks as expensive despite resilience

Australia’s inflation challenge and rising rate expectations are pushing portfolios into more defensive territory, according to Michael Carmody of Centennial Asset Management. Carmody states Australia sits in a very different macro position to other developed markets, with rates likely to rise further, energy-driven inflation persisting and consumer confidence weak. He suggests this combination raises the risk of a stagflation‑style environment and earnings downgrades across rate‑sensitive sectors.

Carmody outlines a clear sector stance, indicating no exposure to property trusts, retailers or consumer lending. Instead, he prefers defensive companies with non‑discretionary demand and take‑or‑pay style contracts, citing APA Group (ASX:APA), Woolworths Group (ASX:WOW), Coles Group (ASX:COL) and Telstra Group (ASX:TLS) as examples. He also highlights structural growth themes in electrification and data centres, favouring contractors over data centre operators.

On specific names, Carmody points to GenusPlus Group (ASX:GNP), Southern Cross Electrical Engineering (ASX:SXE) and SC Technology Group (ASX:SCT) as leveraged to long‑dated electrification and infrastructure pipelines, with attractive order books and margin potential in his view. He is cautious on software valuations after the recent bounce, wary of gold at current levels, underweight resources overall and sees Australian banks, including Westpac (ASX:WBC), as expensive despite ongoing resilience.