So many investors around the world are cautious in today’s market that defensive stocks may have become a risky bet. According to Citi analyst Robert Buckland, defensive stock valuations are historically high and are becoming an increasingly crowded trade.

Citi’s global defense index currently trades at a PE of 22x, up from 12x in 2009. In addition, the index is now 66 percent above its pre-crisis peak. The MSCI AC World has only eclipsed its pre-crisis peak by 16 percent.

A Bit Of Advice

The overvaluation of defensive stocks creates a paradoxical dilemma for equity investors looking to play it safe. Buckland said defensive stocks look expensive compared to other stocks, but still compare favorably to other defensive asset classes, including bonds.

“We recommend that multi-asset investors should keep buying defensive equities, perhaps with a hedge against any sharp increase in rates,” Buckland advised.

For equity-only investors, he cautions…

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