Autumn stumble brings defensive (and value) sectors back into focus

Russ Mould
17 October 2018

“The FTSE All-Share is down by 10% from the closing all-time high of 4,324 reached in May and the autumn shake-down also means that the index is down by 8% for the year,” says Russ Mould, AJ Bell investment director. 

“The shift in the market’s mood music can also be seen in which sectors are doing well and which are doing badly. Just 10 of the 39 industrial groupings which comprise the All-Share are now in positive territory for the year and previous laggards, such as defensive sectors and potential ‘value’ plays now seem to be coming to the fore.

Best and worst performing sectors in the FTSE All-Share, 2018 year to date

Top 10

% change

 

Bottom 10

% change

Industrial Metals & Mining

31.2%

 

Financial Services

(13.7%)

Technology Hardware

30.4%

 

Real Estate Invest. & Services

(15.9%)

Oil Equipment & Services

13.7%

 

Construction & Materials

(16.2%)

Food & Drug Retailers

12.4%

 

Food Producers

(16.3%)

Pharmaceuticals & Biotechnology

8.7%

 

Life Insurance

(16.3%)

Automobiles & Parts

4.2%

 

Banks

(18.1%)

Oil & Gas Producers

3.2%

 

Industrial Transportation

(21.1%)

Media

2.3%

 

Software & Computer Services

(25.4%)

Leisure Goods

0.8%

 

Tobacco

(30.4%)

Aerospace & Defense

0.2%

 

Mobile Telecommunications

(33.4%)

FTSE All Share

(8.2%)

 

 

 

        
Source: Refinitiv data

“Looking at year to date, the list of ten sectors that have gained most is a mixture of cyclicals (Industrial Metals, Leisure Goods and Media), go-go momentum (Tech Hardware), turnaround stories (oils and oil equipment, helped by a higher crude price) and defensives such as Pharmaceuticals.

“The list of laggards includes areas that could be seen as classic defensives, such as Mobile Telecoms, Tobacco and Food Producers, although technological changes, competition and new product cycles threaten the first two, so the case for their haven status is no longer as simple as it once was.

“But since the end of the third quarter, it is noticeable that stodgier sectors have risen up the performance rankings, at the expense of more cyclical ones, to perhaps reflect wider concerns over stock markets and their trajectory, or at least to suggest that someone, somewhere thinks there is some value to be had in sectors that had previously lagged.

“Since the end of September, Fixed-Line Telecoms (in essence BT) and Gas, Water and Multi-Utilities have both jumped by 13 places in the sector rankings, to 23rd and 19th respectively. Electricity, another defensive sector and hitherto an underperformer, has gained seven placed to reach 26th.

“By contrast, Construction and Materials, General Industrials and Industrial Transportation have dropped sharply down the performance rankings.

 

Biggest gainers and fallers within FTSE All-Share sector performance rankings in Q3 2018, to date

Top 5

Change

 

Bottom 5

Change

Fixed Line Telecoms

+13 (to 23rd)

 

Construction & Materials

-6 (to 32nd)

Gas, Water & Multi-Utilities

+13 (to 19th)

 

Life Insurance

-7 (to 34th)

Electricity

+7 (to 26th)

 

Financial Services

-8 (to 30th)

Pharma & Biotech

+4 (to 5th)

 

General Industrials

-9 (to 22nd)

Oil & Gas Producers

+4 (to 7th)

 

Industrial Transportation

-11 (to 36th)

Source: Refinitiv data


“This could reflect a move from cyclicals to defensive, haven sectors. 

“Even if Royal Mail’s woes will be weighing heavily on Industrial Transportation it will therefore be interesting to see if the October stumble does herald a (downward) major shift in market momentum or simply a change of leadership, away from growth and momentum-driven strategies to ones where value starts to lead the way after years of underperformance (with the exception of a brief flurry in 2016).”

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