Managers are positioning their European portfolios away from exporters and towards defensive stocks ...
Managers are positioning their European portfolios away from exporters and towards defensive stocks in preparation for a global slowdown.
Ashburton, Aviva and Forsyth Partners are all following this theme within their funds.
Calvin Vaudin, manager of Ashburton pan-European fund, says: "Although the European economy is performing well with GDP at 2.7% for the second quarter, we are concerned a US slowdown might impact European exporting companies.
"We believe this will impact the luxury goods markets because US consumers will find the European imports too expensive to buy.
"Companies such as cosmetic firm L'Oreal and car manufacturer Mercedes, which sell goods in the US, could be impacted."
Instead, Vaudin has slanted the portfolio towards stocks that are domestically orientated. For example, he is invested in French hypermarket store Carrefour because French consumer spending is at its highest level.
Carrefour combines both a supermarket and department store, which provide consumers with a wide choice of goods and services.
Its first half results were up 8.8% compared to the same time the previous year.
Alongside this, the Ashburton portfolio has an overweight position in the defensive pharmaceutical sector because these companies show stable earnings. One such group is Novartis, which he likes because it has 75 development projects in the pipeline and sales increased by 15% to $17.5bn for the first half of the year.
Philip Parker, manager of the Aviva Pan European Equities fund, has also positioned his portfolio towards defensive pharmaceutical and biotech stocks.
He has German-based oncology specialist GPC Biotech in his portfolio because of the products it is bringing to the market.
Its prostrate cancer drug, Satraplatin, demonstrated strong results in slowing the progression of the disease, with potential sales and growth running into hundreds of millions.
Prostate cancer is the most common cancer among men in the US and Europe, with about 234,000 in the US and more than 200,000 in Europe expected to be diagnosed with the disease this year.
Meanwhile, Peter Toogood, managing director of Forsyth Partners, says: "Company ratings are reasonable in Europe and they have good free cashflow.
"On the downside, small caps may underperform because monetary policy is tightening in the region. These stocks may suffer as they find it harder to pay back loans as interest rates rise."
For the Forsyth Greater Europe fund of funds product, Toogood has chosen portfolios that have a large-cap bias. These include the Cazenove European Equity fund and the Schroder European Alpha Plus portfolio.
Elsewhere, Vaudin is overweight energy stocks. He says: "There is huge demand for oil from China and India, and companies that can find oil are in demand.
Oil riggers such as Seadrill can rent out their rigs for $500,000 a day. Companies have been reluctant to invest in this area because rigs can take between three and four years to construct."key points
Managers avoiding exporters in case slowdown in the US
Pharmaceutical sector looks favourable
Large-cap sector has been performing well
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