"As macro data reflect global slowdown and central banks blink ... rotation to defensives to accelerate," they said, adding they expect defensives to outperform cyclical assets.
|
|
But these days the cyclicals vs defensives ratio is skewed by tech - nominally classed as cyclicals, companies such as Apple and Amazon have behaved increasingly like safe defensives.
|
|
But all 10 sectors showed strong performance, including the defensives.
|
|
Therefore, we will likely reduce defensives over the next few months.
|
|
Financials remain an OW (overweight) in that scenario and Defensives an UW (underweight).
|
|
Defensives from Diageo to Astrazeneca contributed the biggest gains, with financials on the backfoot.
|
|
Defensives such as utilities, real estate and healthcare stocks slipped the most on the STOXX.
|
|
"If the trade war hits the economy, then defensives will be better off," Stefanopoulos said.
|
|
He blames the defensives' popularity on fear generated by negative U.S-China trade war developments.
|
|
"Our analysis of European cyclicals versus defensives is based on Euro area PMIs, US bond yields and FX. Our assumptions of positive PMI momentum and bond yield upside are consistent with 5% upside for cyclicals versus defensives by early next year," the note explained.
|
|
For equity-only portfolios, staying underweight defensives can be dangerous, according to his note from Citi.
|
|
And US small-cap cyclical stocks continue to trail defensives badly, adding more fodder to their consensus.
|
|
The former category comprises 'cyclicals' - carmakers and retailers for instance - while 'defensives' include utilities and consumer staples.
|
|
The former category comprises 'cyclicals' - carmakers and retailers for instance - while 'defensives' include utilities and consumer staples.
|
|
Defensives from healthcare giant AstraZeneca to consumer goods company Reckitt Benckiser gained, despite rises in the pound.
|
|
The firm recommends a switch from defensives to cyclicals, in particular real estate, industrials and health care.
|
|
He said the ratio of cyclicals to defensives is back to the level it was at in January.
|
|
Consumer cyclical stock funds returned 26.3 percent, according to Morningstar, trailing the 500 percent gain for consumer defensives.
|
|
JPMorgan believes investors will ultimately rotate out of those defensives and into sectors that have not performed as well.
|
|
"At the end of a growth scare when recession fears emerge, secular growth stocks typically underperform defensives," he said.
|
|
"The sector composition of international stocks is more skewed towards cyclicals than defensives compared to US stocks," Berezin said.
|
|
"Look at the under performance of all the cyclical sectors including consumer discretionary and financials ... and the outperformance of defensives."
|
|
New Zealand's benchmark S&P/NZX 50 index was 0.5 percent higher at 6,791.55 led by defensives and consumer stocks.
|
|
The firm favors cyclical stocks such as energy and miners over defensives, based on market behavior during previous similar cycles.
|
|
Most sectors registered gains with defensives such as fast-moving consumer goods and healthcare adding 1.5 percent and 1.3 percent, respectively.
|
|
"[Defensives] are trading at a 10 percent-plus premium to their relative P/Es over the last 20 years," Stovall said.
|
|
"Rising corporate leverage concerns say bonds should outperform stocks, while a weaker profit outlook suggests defensives could outperform cyclicals," Hartnett said.
|
|
"If you look at the traditional defensives like utilities, staples, telecom, they're all down year-to-date right now," Cronk said.
|
|
Within fixed income allocations, duration exposure is likely to be trimmed, while value and cyclical stocks should outperform defensives and dividend plays.
|
|
DEMAND FOR DEFENSIVES Equity markets include shares that do well when the economy is robust and others which perform in tough times.
|
|
This should come as no surprise, as those so-called defensives historically tend to perform best when the broader market is falling.
|
|
Stocks such as consumer staple Unilever and pharma firm Shire dropped as investors moved out of "expensive defensives" to take on more risk.
|
|
Cyclical equities are favored over defensives, banks should benefit from steepening bond yield curves, while infrastructure spending could boost housing and construction stocks.
|
|
"Investors have to invest because of the low interest environment, but the best sectors currently are defensives," said Christian Stocker, strategist at UniCredit.
|
|
"We could see renewed acceleration in sector rotation away from expensive defensives and domestic-demand stocks and toward cyclicals, exporters, and financials," it said.
|
|
So, I think it is the stocks that have more upside versus the defensives that you buy if you think the market's going down.
|
|
He cited how Goldman's basket of cyclical names already outperformed the firm's defensives basket by more than 10 percentage points in the last six months.
|
|
The former category comprises 'cyclicals' - carmakers and retailers for instance - while downturns are often preceded by demand for 'defensives', which include utilities and consumer staples.
|
|
"At the end of a growth scare when recession fears emerge, secular growth stocks typically underperform defensives," Wilson said in a note to clients Monday.
|
|
However, defensives such as utilities, real estate and consumer staples - also known as bond proxies due to their high dividend yields - were the biggest gainers.
|
|
Slicing up the market a different way, cyclical stocks have outperformed defensives in terms of earnings momentum during the most recent quarter, say analysts at UBS.
|
|
For John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, cyclicals are the place to be, noting that defensives have been overvalued for quite a while.
|
|
However, while the growth sectors will do well regardless of the economic or interest rate underpinnings, he thinks investors should be somewhat careful with classic defensives.
|
|
The stock market's move higher since the December low has been a 'macro' trade, where the whole market rose, defensives lagged and cyclicals led the way.
|
|
"We still like cyclicals over defensives and we're sticking with that, and that's the consumer story; we're not falling into a recession story," Azzarello said Wednesday.
|
|
The ETF is 150 percent long cyclicals such as Microsoft, Apple and J.P. Morgan and 50 percent short defensives such as Exxon Mobil and Johnson & Johnson.
|
|
This suggests a shift to smaller fixed income allocations and shorter duration positions, while value and cyclical stocks are likely to outperform defensives and dividend plays.
|
|
They see the potential for cyclical stocks versus defensives to continue to gain momentum in the near to medium term in the U.S. and in emerging markets.
|
|
On Wall Street, each of the major S&P sectors was in the red, with defensives such as utilities index and real estate outperforming the broader market.
|
|
"Among the defensives, the only place where I'm really shopping is going to be in health care because health care had been so brutalized this year," Stoltzfus said.
|
|
This, coupled with Deutsche Bank's view that cyclicals will underperform defensives, implies more than a 5 percent underperformance for German equities "over the coming months", according to Deutsche.
|
|
"Earlier this year, we did end up taking some money out of the "expensive defensives", as they got stretched, taking yields down a long way," Santander's Payne said.
|
|
"Returns have come from a narrower group — defensives, high quality, and secular growth — while cyclical or low quality stocks have lagged," he wrote in a recent client note.
|
|
TOKYO, Aug 28 (Reuters) - Japanese shares posted modest gains on Wednesday, led by buying in defensives such as telecommunications and consumer-linked firms, though concerns about Sino-U.
|
|
Mr. Levkovich's question about sector rotation into value stocks and out of defensives is likely to remain open for some time, but he expects the rotation to continue.
|
|
But when in the second half of 2016 an economic recovery in Europe gathered pace, defensives started to lose ground to stocks more tied to the business cycle.
|
|
While defensives have legs to gain further in a less valuation-oriented move, a big rebound in cyclicals cannot be ruled out, depending on the trade talks' outcome.
|
|
The RWCD cyclicals over defensives ETF has outperformed the rest of the market in the past six months, rallying 9% compared with a 5% gain on the S&P 500.
|
|
Large brokers have been turning away from cyclicals and into defensives lately as they see strong momentum in European data fading, removing a catalyst for the sectors most sensitive to growth.
|
|
"When the Fed was raising rates and bond yields were moving up, traditionally defensives don't do well, and more cyclical stocks tend to do better and financials do better," he said.
|
|
Defensives such as consumer staples, utilities, real estate, healthcare and telecoms, seen as safer for their high dividend payouts, have been the top-performing U.S. sectors for the past three months.
|
|
"From the market peak, defensives (Utilities/Staples) tend to lead; after sell-offs of 25%, leadership remains defensive but it shifts slightly more cyclical (Banks, Semis, Consumer Durables/Apparel)," he wrote.
|
|
There was a clear move out of defensives with utilities and food and beverages both losing around 0.4%, while a batch of bad news for healthcare companies hurt the healthcare index.
|
|
Multiple profit warnings from European companies this week have fuelled fears of recession and any gains have tended to come in sectors commonly perceived as defensives - healthcare , real-estate and utilities.
|
|
"Although we have been cautious on European equities for the last six months, we have not been positive on 'Defensives' as we found them both overbought and expensive," Morgan Stanley strategists said.
|
|
"People are overweight defensives in general, and within that there is probably a very big overweight in utilities and staples," said Neil Azous, founder of Stamford, Connecticut-based advisory firm Rareview Macro.
|
|
Tech sector aside, the trend of outperformance of defensives relative to cyclical sectors continued, with utilities among the best-performing sectors while banks made timid gains and autos were in the red.
|
|
"Cyclicals/Defensives flows, price relatives and Value/Growth valuations all look stretched, with Banks in particular trading significantly below what peripheral spreads would imply," noted the J.P. Morgan strategists in a note.
|
|
Europe's equity market is barely in the black in 2018 but while sectors such as autos, which are highly dependent on global trade, have been a drag, defensives have filled the gap.
|
|
Defensives such as healthcare stocks also rose, with heavyweights CSL and Resmed rising about 0.9% and 1.3%, respectively, as the trade truce spelt better prospects for their biggest market, the United States.
|
|
So, we just wanted to take-- move the portfolio to be a bit more balanced between cyclicals and defensives, to make sure that-- we're not overly positioned in one direction, versus the other.
|
|
However, their attractive payouts and rising valuations have earned them the nickname "expensive defensives", and some analysts say that now makes it harder to justify holding on to them for their dividend payouts.
|
|
The firm noted that a majority of both growth (59 percent) and value (74 percent) fund managers have beaten the market, though Goldman favors growth over value and cyclicals over defensives going forward.
|
|
"We remain tactically neutral near-term, but expect a pull-back ... We are underweight European cyclicals versus defensives - and expect European equities to continue underperforming U.S. equities over the coming months," they said.
|
|
Here's a quick look at some of the most notable winners and losers from Q22014: DEFENSIVES The best performing sectors in the first part of Q1 were telecom and utilities, according to Bloomberg.
|
|
"Our view remains that government bond yields will move higher, and that leaves us still favouring the less rate-sensitive parts of the stock market, cyclicals, while we're more cautious on defensives," Bell added.
|
|
"Our view remains that government bond yields will move higher, and that leaves us still favoring the less rate-sensitive parts of the stock market, cyclicals, while we're more cautious on defensives," Bell added.
|
|
Morgan Stanley says the breadth of Europe's earnings upgrades is at the strongest level since 2010, with cyclicals and defensives and financials and commodity-related companies all looking healthier, suggesting a recovery is broad-based.
|
|
"Although we have been cautious on European equities for the last six months, we have not been positive on 'Defensives' as we found them both overbought and expensive," Morgan Stanley wrote in a research note.
|
|
UBS strategist Gao Ting also cited the prospects of high interest rates and government-mandated cuts in industrial production as risks to growth, advising investors in A-shares to stay balanced between cyclicals and defensives.
|
|
The STOXX 600 was up 0.2 percent, buoyed by tech, healthcare, and consumer staples stocks - "defensives" which investors reach for as safer bets in times of uncertainty for their strong earnings growth and high dividend payouts.
|
|
Paulsen is on the lookout for typical panic plays, such as a move away from aggressive names in technology, a preference for safe-haven precious metals over industrial metals, and a pickup in defensives over cyclicals.
|
|
" When it comes to safety trades, Tepper believes these stocks will continue to work for the foreseeable future since "a lot has to go right" before investors begin to "rotate out of defensives and back into cyclicals.
|
|
The S&P 500 touched a record on Tuesday ahead of an expected rate cut from the Federal Reserve, but looking under the hood, investors are increasingly flocking to one of the safest pockets of the market — defensives.
|
|
"It's not (the year 2000), it's not (2008), you can still go and buy the defensives in a way," Toogood said in reference to a recession at the start of 2000 and the global financial crisis of 2008.
|
|
Financials (703 percent) and consumer stocks (19 percent between cyclicals and defensives) are the biggest positions; technology is only 12 percent of the ETF, according to Morningstar data, which is below the benchmark and peer fund tech weighing.
|
|
I think that a lot of the defensive sectors have been bid up to the point where if you go to defensives, well you're paying so much for that insurance that it loses a lot of its defensive nature.
|
|
On the flip side, we are buyers of defensives today, specifically Consumer Staples (which we've been overweight) and Utilities (we have been market weight, but valuations have recently improved and political risks from both trade and the 2020 election are low).
|
|
The 12 images in the report show entrances to the site's underground areas that likely contain the missiles and trucks to transport them; defensives berms to protect the underground entrances from aerial attacks; housing for North Korean troops; and more.
|
|
The strong euro is also part of the rationale for some brokers recommending investors shift from the more cyclical parts of the market to defensives, as cyclical sectors are both more exposed to global growth and to the negative currency effect.
|
|
In contrarian trades, government bonds, the U.S. dollar, and liquid defensives stocks such as pharmaceuticals or consumer staples were seen as the most unusual buys, while investors also saw shorting cyclical stocks and emerging market equities as going against the pack.
|
|
The pan-region STOXX 600 index edged up 0.1 percent with support from a more than 1 percent rise in auto stocks while defensives utilities, food & beverage and healthcare showed a bit of fatigue after rallying in the last few days.
|
|
Technicians like Stephen Suttmeier at Bank of America Merrill Lynch have been positively giddy recently, noting a bullish rotation into cyclicals, but also to value from growth, high beta from low volatility, cyclicals from defensives and small caps from large caps.
|
|
In a note published Thursday, BAML analysts, led by head of European equity strategy Sebastian Raedler, said the upside potential for European equities would be driven by positive euro area Purchasing Managers' Index (PMI) momentum, and cyclical stocks outperforming defensives.
|
|
SHANGHAI, April 20 (Reuters) - China stocks snapped a four-day losing streak on Thursday, with investors continuing to seek cover in defensives such as the consumer and healthcare sectors, while fleeing small caps and stocks related to the new Xiongan economic zone.
|
|
The rotation into defensives has left managers with their largest 'overweight' position on consumer staples since May 2013 and their most 'underweight' in basic materials since February 2016, Bank of America Merrill Lynch's survey of global managers managing more than $500 billion in assets showed.
|
|
"We expect further broad market upside to be led by the narrowing of the current valuation divergence – rotation – between cyclicals (Financials and Energy) and defensives/bond proxies (Utilities, Consumer Staples, Software)," he wrote, saying that the first group should outperform and the second would likely underperform.
|
|
"The banks have really been the ultimate pain trade for professional fund managers in the second half of the year, and it's all been very much part of this switch from expensive defensives and quality growth to cyclicals," Russ Mould, investment director at AJ Bell, said.
|
|
"Usually when we have Middle Eastern tensions, it takes a couple of days for the market to settle down, so we're probably getting into that ... people are going back into defensives now because it may look like we're having a bit of cooling down," Somasundaram added.
|
|
This is an important point, because the tailwinds for defensives are still in place: Still low interest rates, high uncertainty about the economy's strength, weakness from abroad, and a relatively strong dollar — even if its relative appreciation has slowed amid dovish commentary from Federal Reserve Chairman Janet Yellen.
|
|
Read more: The man who wrote the book on how to make 100 times your money with a single stock outlines the core principles of his investing approach — and shares his 2 top under-the-radar picksSome of his favorites are: the ratio of copper/gold, global credit spreads, levels of volatility, and the ratio of cyclicals/defensives.
|
|