As global markets navigate a period of heightened uncertainty, we believe a thoughtful and selective investment strategy is essential. Below we provide our strategic recommendations for navigating these complexities and identifying opportunities for growth in defensives.
Consumer products: Essential for everyday
Consumer defensives have historically shown resilience during times of stagflation. Furthermore, European names in particular are trading below their long-term valuation levels, while offering relatively stable revenues during periods of slow growth. Our focus in the food and beverage sector is on large, diversified companies that can capitalise on the trend towards healthier options. Snack and soft drink manufacturers, on the other hand, may face increasing health-related challenges, given the US administration’s enhanced scrutiny on the segment. Meanwhile, providers of household essentials and personal care products boast strong long-term prospects, as they remain in demand throughout economic downturns, financial crises, and geopolitical uncertainty.
Telecommunications: Always on
In today’s digital age, electronic communication is ubiquitous, and its importance is amplified during uncertain times – everybody wants to know what is going on all of the time. While the telecommunications industry has been burdened by significant capital expenditure over the past two decades, this investment cycle is fortunately now coming to an end, which should support robust free cash flow generation and dividend payments going forward.
Closely related to the communications sector are tower and data centre infrastructure investments, such as real estate investment trusts (REITs), which are poised to benefit from the secular growth in demand for digital communication and virtualisation.
Insurance: Everybody needs it
People and businesses need insurance regardless of the state of the economy, making demand for insurance products relatively constant. Additionally, the industry benefits from premiums that are paid on a regular basis, and are not subject to tariffs, which provide a predictable income stream. As a result, insurance stocks can perform relatively better during times of economic uncertainty or market volatility.
Healthcare: Not so easy this time around
Healthcare has historically shown resilience during times of stagflation. However, the traditional defensiveness of the healthcare sector may now be somewhat compromised. Certain subsectors, such as managed care and biotechnology, are particularly susceptible to US policy changes and high capital costs. Our focus is on large-cap pharmaceutical companies with a global presence that can reduce tariff risks and offer attractive valuations due to promising product pipelines and/or dividend yields.
European utilities: Positive tailwinds
We hold a positive view on European utilities due to low valuations, strong regulated growth in electric grids, and policy support for the energy transition. In addition, we are entering a new era of electricity demand growth. Look out for shares that offer substantial dividend yields and, in the case of European names, are trading at appealing valuations.
Swiss real estate: Hard assets in the strongest currency
Swiss real estate is also known as ’concrete gold’ in German. This is partly due to the country’s stability, as reflected in its low inflation, low interest rates, and strong currency. Moreover, its outstanding reputation is partly due to Swiss real estate’s limited supply and low vacancy rates in major cities. One way to invest is via listed real estate stocks. They offer attractive dividend yields (especially compared with Swiss-franc bond yields), although they are exposed to daily market risk.
Market-neutral hedge funds: Looking beyond sectors
Market-neutral hedge funds employ strategies that avoid taking excessive market risk, thereby minimising their exposure to broader market fluctuations. By offsetting long positions with short positions, they aim to provide a low level of equity market exposure and hence volatility. We prefer hedge funds that trade opportunistically and have a track record of disciplined volatility management, combined with a robust risk management framework.
Save havens and defensives – what to watch
The often-heard phrase ’US exceptionalism’ has taken on a very new meaning with the announcement of the highest tariffs since the 1930s and the continued market volatility. Taking a high-level view in this still evolving environment, our preferences lie with safe-haven assets such as gold, the Swiss franc, and the Japanese yen, as well as defensive domestic large-cap equities, particularly those in Europe and China.