LONDON (Reuters) – Defensive equity strategies focused on high payouts and steady earnings have grown in popularity this year as investors are struggling for security, worried the biggest stock market rally for decades is coming down soon.
The German stock price index DAX graph is depicted on the Frankfurt stock exchange, Germany, on April 12, 2019. REUTERS / Staff
Investors have piled into defensive sectors that generate higher yields and have stable revenue streams for the first time Two years, consider them the safest bet that global growth is slowing down and trade tensions are rising, data shows.
Globally, supply stocks have pulled in $ 4.5 billion this year, while consumer goods have pulled in $ 3.2 billion, according to EPFR data. This breaks a two-year emigration from these sectors and is the last sign of how troubled investors have stocks at record-high levels in a deteriorating economic climate.
The influx accelerated in early May when hopes for a ceasefire in a trade war between the United States and China were dashed.
The strategy has paid.
Exceptionally, those parts of the stock market focused more securely not only on protected investors from the worst of sales at the end of last year, but also helped them better than the first quarter of 2019.
High Yield and "Low Volatility" Stocks that tend to move less sharply than average stocks have hit market benchmarks. It emphasizes how "defensive", not to mention hated, has been this year's rally.
"You have your stock market, which is 16% (year-to-date) but low volatility beats it. You certainly don't expect in any other bull market," says Nick Alonso, director of multi-asset at PanAgora Asset Management in Boston.
"Defensive assets went well in the fourth quarter, they were protected on the downside, and they also remedied it upwards in the 1st quarter," he added.
The S & P 500 is up 16.7% this year, rising to a record high last week, but an index tracking system that only corresponds to the "low volatility" stocks in the S & P 500, states that 17.4% year-to-date. Low volatility also outperformed 2018. "Return to minimum deviation (low volatility) and traditional defensive strategies have been somewhat uncommon," Panagora Alonso said.
Interest rates from potential customers in Panagora's defensive equity strategy fund have more than doubled from the same period last year, he added.
(GRAPHICS: Investors flock to defensive stocks in Q2 – tmsnrtrsrs / 2YkuAY0)
BEARS AT RECORD HIGHS
The magnitude of investor mistrust against the stock market is relentless increase is evident in studies like Bank of America Merrill Lynch.
In the same way as US stock markets hit record highs, fund managers reported in the bank's June survey that their positioning was the most bearish it has been since early 2009.
They also replied that they increased their cash buffers to 5.6% from 4.6% as they hit protection against a market delight.
A dramatic U-turn of global central banks combined with an escalating trade conflict has made investors uneasy about the economy and uncertain where the markets are moving forward with all eyes at a critical meeting between US President Donald Trump and Chinese Prime Minister Xi Jinping in the weekend.
"There is not much conviction out there, and it would be surprising if there was," says Kevin Gardiner, global investment strategist at Rothschild & Co.
"It is not remarkable that we see the market stocks too late perhaps breaking down a little," he added.
Global stock markets have had their best half-yearly returns since 1997, yet the risk for the rally is clear.
"The bull in the china business is the political element, the commercial war: there is a chance of a quick turn," says Guillaume Lasserre, investment manager at Lyxor Asset Management.
Lasserre has an underweight position on banks and industrial companies and is overweight pharmaceutical stocks.
"We are defensively placed, always for the same reason. We are very confident in the market's ability to perform long-term, but lack of clarity in the short term."
Investors also seek to unlock returns by supporting revenue funds that promises higher payouts.
European investors have withdrawn money from US equity funds, even though they are pointing billions into US equity funds.
David Holohan, director of equity strategy at Mediolanum Asset Management in Dublin, is another investor switching to more defensive positioning, unattended central bank support will help maintain the markets.
"We think that monetary easing is a last hurray, and when it is already played, if investors have not already seen it, we look at fundamentals and see that earnings estimates have deteriorated for months now and it must not interrupted much longer before stocks give in, "he said.
(GRAPHICS: US Revenue Funds Draw Inflows – tmsnrtrsrsFFDC3KK)
Reporting by Helen Reid; Editing Josephine Mason and Raissa Kasolowsky