Defensive Plays: How to Position Your Portfolio for a Market Drop

Investor Mark Hulbert has identified a suite of 15 stocks, including fast-food giant Wendy’s, that are positioned to outperform during the next inevitable bear market. These selections focus on a low-volatility, high-dividend yield strategy designed for investors who want to remain in the market but are growing wary of the high valuations seen in the technology sector. The approach emphasizes companies with stable cash flows and 'boring' business models that historically provide a defensive cushion when broader market sentiment sours.

Conversely, the study warns of 22 specific stocks, including EV manufacturer Lucid Group, that are currently seen as 'artificially high' and set to lag the market through 2026. These laggards are often characterized by high price-to-earnings multiples and a lack of clear profitability, making them 'expensive to short' and vulnerable to sharp corrections. Hulbert’s analysis suggests that the current era of market exuberance has potentially obscured the underlying risks in high-growth companies that have yet to prove their long-term resilience.

For those looking to diversify away from the heavy concentration in index funds—which are increasingly dominated by a handful of tech names—Hulbert suggests 'AI-proofing' portfolios through active management and specialized ETFs. By shifting toward value-oriented sectors and companies with strong balance sheets, investors can protect against the risk that the AI-driven multiple expansion of the past two years might eventually deflate. This defensive rotation is becoming more popular as institutional 'smart money' begins to diversify away from the year's biggest winners.