Buy defensive stocks when things get tough – this popular investment strategy has become the mainstay in times of market volatility, but what happens when the traditional defensive sector is gone ? Morningstar strategist David Sekera believes the utilities sector – long seen as a safe-haven – could be “at the highest risk” if inflation remains higher in the long run. The utilities sector is seen by many as a safe bet in times of market volatility, thanks to its steady, regulated earnings and higher dividend income relative to other sectors. It has certainly outperformed the broader S&P 500 this year, down just over 1% year-to-date, while the S&P 500 is down nearly 20% year-over-year. According to FactSet data, the sector is the second best performer of the index’s 10 major sectors and has the second highest dividend yield, according to FactSet data. It is also often thought of as an inflation hedge, but Sekera is not convinced. Sekera, who is chief US market strategist at Morningstar, told CNBC Pro Talks last week. Read more This fund manager oversees $10 billion. Here’s Where He Invests While Inflation Still High buy tactical on these global stocks “I may not necessarily be underweight [utilities] at this point, but it’s certainly one of those things that I would be very cautious of. It’s also an area where I think, if inflation continues to be more persistent, prolonged and higher than expected, that will probably be the area with the highest risk,” he added. It happens when prices Consumer prices continued to soar in the US Consumer prices rose 9.1% in June from a year ago – the fastest inflation rate since 1981 and well above estimates. Morningstar believes that utilities’ performance this year has demonstrated what it considers the industry’s biggest long-term risk: inflation, the Chicago-based financial services firm said. : “Utilities are most sensitive to inflation because of mostly fixed revenue, large capital investment budgets, and borrowing needs,” the Chicago-based financial services firm said in its quarterly market outlook. 3 was announced on Jan. 1. Sekera said utility companies also enjoy limited pricing power, as they require regulatory approval to raise interest rates – a process he said can lose yes six to 12 months. therefore, the focus should be on those in a constructive regulatory environment that provides the best protection from inflation, Sekera added. His top picks in the field include California-based Edison International, which he says is trading at a “fairly discounted” price compared to its peers, despite growing growth. Better growth prospects, dividend yield and clean energy profile. He also likes Entergy Corp, which operates out of the southern United States. This is a stock that he believes will be less affected by inflation than its competitors. Rounding out his picks of Virginia-based Dominion Energy, Sekera also said there is less regulatory risk in an inflationary environment.