European Fund Managers Turn Defensive

Portfolio managers who have been reducing their exposure to growth-oriented stocks throughout the year have had mixed results

Muna Abu-Habsa 2 July, 2018 | 8:57AM
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Muna Abu-Habsa: It is still a bumpy ride for European equities, the broad market index MSCI Europe is down just over 1% so far this year although small and mid-cap indices have fared slightly better. After a rough start in Q1, the second quarter saw a very strong bounce back in April and the first half of May, but European equities then retracted on political events in Spain and Italy.

These raised the threat of another euro crisis and saw investors shifting back again towards safe assets. The healthcare sector for example was a strong outperformer through the month of May given the perceived defensive nature of healthcare stocks, with financials at the bottom of the performance charts as investors feared a new sovereign debt crisis. 

So, what does that mean for European equity investors? Well, portfolio managers who have been reducing their exposure to overcrowded, growth-oriented stocks throughout the year have had mixed results as the market volatility and uncertainty has driven the valuations of safe assets even higher.

Stock-picking within those has been crucial though as some previously shunned stocks within defensive sectors, such as Tesco (TSCO) and Electricite de France (EDF) for example are up in double digits this year. We expect portfolio managers to continue to ply their processes consistently throughout this volatility and investors to take a long-term view.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Electricite de France SA  
Tesco PLC326.00 GBX0.34Rating

About Author

Muna Abu-Habsa  is a senior investment research analyst at Morningstar

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