All posts in category: Sector Strategy (49)

Barbell

Thursday, April 4th, 2019

Overweight defensives and high growth. Ignore the rest.

Equity investors have decided to revisit a strategy first utilised during the secular stagnation debate of 2015 and early 2016. In the US and Europe, they are buying low beta defensives in case there is a recession and paying a premium for stocks with strong secular growth, in case there isn’t. There is very little active weight in the rest of their portfolios. It’s a Barbell strategy, which works while we wait for clarity from the US results season.

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Health Warning

Thursday, February 7th, 2019

Running European equity portfolios is harder than normal

The difference between our recommended sector weights for the UK and the Eurozone has reached a seven-year high. Of course, Brexit is part of the explanation, but for most of the period since the referendum this divergence was below its long-term average. It has always been dangerous to transfer sector views from one region to another without careful thought, but the danger now is much higher than normal.

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Simple Explanation

Thursday, November 15th, 2018

Industrials are weak in both equity and credit models

Weakness in US Industrials can often be a signal that we are close to a period of market disruption. That signal is flashing yellow, as are the signals from other equity regions such as the UK, the Eurozone and Japan. We have red flags on Industrials across all of our credit models. We don’t have a clear and obvious cause yet, but the simplest explanation could be that we are closer to a significant slowdown than consensus thinks.

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All Good Things Come to an End

Wednesday, October 17th, 2018

US Technology sector downgraded

The US Tech sector may bounce if Q3 earnings are good, but we think our downgrade is part of an important trend, not just a blip. In other regions, the sector has been downgraded to underweight within a few weeks of being downgraded to neutral. At the stock level, we have already cut most of our long positions between June and October and expect to cut some more in the near future.

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Lost in Translation

Wednesday, September 26th, 2018

China and the US disagree about more than trade

There is a fundamental conflict between the bearish sector stance of our Chinese equity sector model and the bullish positioning of the US model. We don’t think it is possible for these two sets of sector recommendations to remain unchanged without having an impact on each other or the rest of the global equity universe. On balance we think it is more likely that the US will come to resemble China, rather than the other way around.

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Top and Bottom Agree

Wednesday, September 19th, 2018

Stock-specific models show equities under pressure

Our new stock-specific models cover the US, UK and the Eurozone and they have an uncomfortable message regarding the outlook for global equities. We looked at eight companies in the US and the UK, whose profits are geared to global equity markets. Seven of them have a very low probability of beating their host index on a risk-adjusted basis, and their scores are lower than the Financials sector as a whole. Equity investors appear to believe that the outlook for equities is difficult and that agrees with our top-down models

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Midsummer Moderation

Wednesday, August 22nd, 2018

Time to reduce the beta of your equity portfolio

All four defensive sectors in the US have generated relative buy signals in the last three months and as a group they are starting to outperform the index. This may or may not be an indicator for the equity market as a whole; that is for the future to decide. Right now, investors should be reducing the beta of their equity portfolio, no matter what their macro-outlook. And the same applies to European portfolios as well

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Three Unrelated Ideas

Saturday, July 14th, 2018

Japanese Equities, US High Yield and Healthcare

Our models suggest that investors have decided to use Japanese rather than Eurozone Equities, as a way of funding their increased exposure to US Equities. US High Yield may be about to lose its #1 position in fixed income. Healthcare is about to be upgraded to overweight in the US and Europe. It is largely unaffected by the threat of a trade-war.

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Defensive Mindset

Wednesday, July 11th, 2018

The least bad alternative

The shift towards defensive equity sectors has clearly accelerated in the last three weeks. It has happened in every region and is led by the Utilities sector. The detail is less important than the big picture. Investors are worried about rising rates, rising oil prices and rising tariffs. They are buying defensives because of what they are not, rather than what they are.

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Lagging sectors and regions

Wednesday, May 30th, 2018

What does an underweight in both really mean?

This week we look at which equity sectors have historically been rated underweight when their region is also rated underweight. Causation is much harder to establish than for overweight sectors in overweight regions. The main lesson is that sector selection may not compensate for being in the wrong region in a bull market or the wrong asset class in a bear market.

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