European fund managers have become less worried about a possible recession, but still prefer investing in pharmaceutical and food shares over technology, according to a recent survey conducted by Bank of America. The survey revealed that fund managers have picked stock market sectors across Europe, from Ireland to Greece, based on the prospects for a “soft landing” for the European economy. However, concerns over interest rates have caused top investors to favour defensive stocks and become less attracted to tech shares, which typically thrive in periods of low inflation and strong economic growth.
The BofA survey showed that pharma has replaced tech as the largest sector overweight in Europe, with utilities and food and beverages completing a strong defensive shift in the top four overweight positions. Property shares are expected to remain out of favour. The survey also found that real estate is the most disliked sector, followed by mining, while banks are in mild underweight territory. Among European countries, France remains the most popular overweight, followed by Switzerland, while Italy and Spain are the least preferred. Only a small number of fund managers predicted that the European economy could “rebound further” as energy price inflation fades.
The survey results suggest that fund managers are taking a cautious approach to investing in Europe, given the ongoing uncertainty over Brexit and the US-China trade war. The shift towards defensive stocks reflects concerns that the global economy may be slowing down, and that interest rates may rise further, which could reduce the value of growth stocks.
Despite these concerns, the survey found that fund managers are still optimistic about the prospects for the European economy. The majority of respondents believe that the European Central Bank will maintain its current monetary policy stance, with interest rates remaining at or near record lows for the foreseeable future. This should help to support economic growth and boost corporate earnings.
The survey also revealed that fund managers are increasingly focused on environmental, social and governance (ESG) issues when making investment decisions. More than 80% of respondents said that they consider ESG factors when assessing companies, and 60% said that they have increased their allocation to ESG funds over the past year. This reflects a growing awareness among investors of the potential risks and opportunities associated with climate change, social inequality and corporate governance.
Overall, the BofA survey suggests that European fund managers are taking a cautious and defensive approach to investing in the current economic climate. While they remain optimistic about the prospects for the European economy, they are wary of the risks posed by rising interest rates and slowing global growth. As a result, they are favouring defensive stocks, such as pharma and food, over growth stocks, such as tech and property. They are also increasingly focused on ESG issues, reflecting a growing awareness of the potential risks and opportunities associated with sustainability and good governance.