Now Isn't the Time for Defensive Stocks - UBS

While markets have erased much of the gains from the November-to-early-January rally, equities have shown some real resistance to very weak data flow. At the same time, many see 2009 as a year when investors will be forced to deal with a weak macro, earnings and sentiment backdrop, along with unprecedented policy responses.

Despite lingering concerns about macro conditions and the financial sector, UBS’s head of global equity strategy thinks heavily defensive portfolios will struggle in 2009. Jeffrey Palma told clients that valuations, earnings risks for defensive sectors, leading indicators and financial conditions are all less supportive for defensive stocks.

Since we have seen many of the factors that contributed to the massive loss of confidence in 2008 begin to improve without a significant and sustained bounce in equities, he recommends taking the first step in a portfolio repositioning process. The suggestion is for a less defensive stance, but it comes with a warning that the depth of the slowdown and the multi-year balance sheet repair process means the chances of a strong cyclical rebound are low. “Thus, it is still too early to adopt aggressive pro-cyclical positioning,” Mr. Palma said.

UBS prefers early cyclical consumer and technology stocks, which tend to outperform during recessions even when consumer sentiment is weak. As a result, the firm is adding to consumer discretionary and technology names, while trimming its exposure to consumer staples, healthcare and telecoms. UBS continues to be overweight the U.S. and underweight the U.K. and Europe.

Other than sector positioning, stock picking based on style considerations is another way to express less defensive preferences, Mr. Palma said. In cyclical sectors, he favors quality stocks that are in a better fundamental position to weather the weak macro conditions. In defensive sectors, which the strategist said are relatively expensive, investors should find cheap stocks, he added.

Comments

[sieraromero:]

Yes, the fp trading desk does not want you to be in defensive positions at this time. Be aggresive. You still have some funds left that they deperatly need! Do not worry--all is well and going accordingly as planned--LOL--

Jan 31 10:21 AM

[auto44:]

According to yesterday's Investors Business Daily, mutual fund out flows are still very large. Until this reverses where is the high volume money going to come from to drive the market up in a meaningful long term way. I think hedge fund redemptions are probably equally as severe. Fear as I see it is as prevelant as ever both amongst we poor novices and the professional.

Jan 31 10:33 AM

[The Hern:]

I don't buy it. UBS thinks its a good time to start being aggressive and reduce your defensive medical and consumer staples stocks. If you check the history, consumer staples and medical have not only led the market in '08 but for the past 10 years so I'm staying with them. By the way, do you get the feeling that Cool Hand Luke works for Thermogenesis?

Jan 31 10:54 AM

[happysoul77777:]

Why bother to be aggressive? The market is structurally broken and unsound. The repeal of the uptick rule, CDS, naked short selling, leveraged inverse ETFs have given the seller all the fire power. SELL!!!

Jan 31 11:55 AM

[Conan the B...:]

happysoul: you have the ability to do the same thing.

Buy the Inverse ETFs on the sectors or indexes of your choice,

Jan 31 01:17 PM

[Old Trader:]

If you actually READ the post, it does NOT say to "get aggressive". Rather it cautions against an overly defensive posture, which is not the same thing. In my portfolio, I've shifted from "very defensive", by exiting my double short ETFs, and those funds are currently in cash, ready to "nibble", as opportunities arise, and doing some short term trading because of the sideways action in the market. Btw, am NOT a trader...typically holding core positions for 3+ years.


On Jan 31 10:21 AM sieraromero wrote:

> Yes, the fp trading desk does not want you to be in defensive positions
> at this time. Be aggresive. You still have some funds left that they
> deperatly need! Do not worry--all is well and going accordingly as
> planned--LOL--

Jan 31 06:34 PM

[Urbane Gori...:]

Cool Hand Luke has been spamming almost every article I've read regarding KOOL for weeks. I suggest you do as I've started doing.. Click the 'Report Abuse' link every time you come across his spam.... Maybe someone from SeekingAlpha will contact him about it..... jegan


On Jan 31 10:54 AM The Hern wrote:

> I don't buy it. UBS thinks its a good time to start being aggressive
> and reduce your defensive medical and consumer staples stocks. If
> you check the history, consumer staples and medical have not only
> led the market in '08 but for the past 10 years so I'm staying with
> them. By the way, do you get the feeling that Cool Hand Luke works
> for Thermogenesis?

Jan 31 08:14 PM