While the move towards more economically sensitive sectors such as banks and miners has been well-documented, defensive names such as GlaxoSmithKline and Vodafone are still the most widely held companies by funds in the UK All Companies sector, proving that professional investors are still not ready to whole-heartedly embrace the bull market story.
Most-held stocks in UK All Companies sector
| GlaxoSmithKline |
| Vodafone |
| BP |
| BG Group |
| Royal Dutch Shell |
Source: FE Analytics
According to FE Analytics, 57 per cent of the funds in the sector list Glaxo in their top-10 holdings, while 52 per cent own Vodafone. Just under half – 46 per cent – hold both.
"The world is not going to be fixed overnight," said Tim Cockerill, head of collectives research at Rowan Dartington.
"There are still issues in Spain where the economy has contracted once again and there are worryingly high levels of unemployment, the UK is back in recession and even data coming out of the US is disappointing."
"The underlying problems have still not gone away and while steps have been made to reduce debt in the eurozone and elsewhere, there is still little evidence of plans to stimulate growth."
The UK’s most highly regarded fund manager, Neil Woodford, has recently reiterated his defensive stance, saying that the current wave of optimism could be nothing more than a flash in the pan.
Woodford’s track record, particularly in down markets, suggests that it might be wise to heed his advice. Our data shows that in 2011 his Invesco Perpetual High Income fund returned 8.99 per cent, more than any other fund in the UK Equity Income sector.
Performance of fund vs sector in 2011
Source: FE Analytics
According to data from FE Analytics, Tesco and AstraZeneca have been among the most heavily sold stocks in the last three months and Cockerill says that this is a sign that managers are becoming more wary of wider risks, not less so.
The two names have been firm favourites in these tough economic times but Tesco surprised the market with its profits warning earlier in the year while AstraZeneca chief executive David Brennan stepped down last week after shareholders expressed concerns over the lack of new drugs in development.
"Managers want to remove uncertainty in their portfolios, they want to protect against losing money," Cockerill continued.
"Tesco and AstraZeneca are not as sound as they were 12 months ago and if I were a fund manager I’d need a very good reason to carry on holding them. On balance most managers would rather hold high-quality businesses with strong balance sheets and defensive earnings."
Fund managers are becoming concerned that following a period of strength, the market may have reached an important tipping point.
Simon Callow, manager of the CF Midas Balanced Growth fund, is pausing for breath and backing off from the most economically sensitive assets.
"We believe that the recent broad-based rally may be maturing, having been supported by the European Central Bank’s (ECB) long-term refinancing operations and improving economic data out of the US. Consequently, we are reducing risk across all asset classes including equities, fixed interest and alternative assets such as commodities."
Meanwhile, Keith Wade, chief economist and strategist at Schroders, points to disappointing US data as a sign that it is time to temper optimism.
"The improvement in US activity has raised the prospect of a self-sustaining recovery as better payroll figures boost income and consumption," he said.
"However, there are signs that the US economy is losing momentum and the data has begun to disappoint. More fundamentally, we doubt whether the recent falls in unemployment will be sustained."