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Following two years of heightened volatility, brokers are already out making grand declarations and stock predictions of what will transpire in the new financial year. Macquarie, one of the first to put together its dream portfolio built to survive a recession, believes the bear market we are currently experiencing is split into two parts.

Following two years of heightened volatility, brokers are already out making grand declarations and stock predictions of what will transpire in the new financial year.

Macquarie has been one of the first to put together its dream portfolio built to survive a recession. The broker believes the bear market we are currently experiencing is split into two parts. The first half is the sell-off, where investors offload stocks and the market experiences heavy selling. The second half, which we are going into, is the recovery phase characterised by rapid rises in share prices as fears subside.

Macquarie believes now is the time to be putting together a defensive portfolio. Here are the sectors Macquarie says are ripe for the recovery phase based on past performance:

• Staples and utilities have outperformed 13 of 15 times in this situation
• Health and Telecom outperformed 12 of 15 times
• Gold outperformed in 5 of 8 cases and has the second-highest average return.
• Industrials have never outperformed
• Diversified financials and basic materials outperformed in just 2 of 15 cases.
• US real estate tends to underperform (rising rates are generally not great for REITs)

And here are Macquarie’s sector and 16 stock picks:

Consumer Staples: Coles Group (ASX:COL), Endeavour Group (ASX:EDV), Metcash (ASX:MTS).

• With inflation and interest rates on the rise, consumer staples is the one sector that performs well because consumers continue to buy staples despite the price rises, because they have to. Consumer discretionary items are usually cut right back because of this rise.

Infrastructure: Transurban (ASX:TCL), Origin Energy (ASX:ORG), Amcor (ASX:AMC), Orora (ASX:ORA)

• Infrastructure stocks offer inflation protection, varying by asset. Most assets have an explicit link to inflation through regulation, concession agreements or contracts. For example toll-road operator Transurban (ASX:TCL) can raise prices in line with inflation.

Healthcare: CSL (ASX:CSL), Ramsay Health Care (ASX:RHC), Resmed (ASX:RMD)

• Healthcare stocks are able to pass-on price increases given their strong pricing power, thanks to patents and high switching costs.

Gold: Newcrest Mining (ASX:NCM), Northern Star (ASX:NST)

• Gold is known as an inflationary hedge. Because it doesn’t pay a dividend or have any cash flows, inflation does not harm its value. Some of the gold miners, however, do pay dividends.

Food: Graincorp (ASX:GNC), United Malt Group (ASX:UMG), Elders (ASX:ELD), and Costa Group (ASX:CGC)

• Food stocks fall under the consumer staples category and usually have performed relatively well during times of inflation.