Defensive European managers have upped their weighting to the unloved consumer staples sector after the stocks have been overlooked in the recent market rally.
European indices rallied by more than 20 per cent in 2013, having already risen substantially in the second half of 2012.
However, consumer staples, especially multinational firms, had been overlooked in the market rise because they had performed so well during the eurozone crisis in previous years.
But BlackRock’s Andreas Zoellinger and Artemis’s Mark Page believe some of the stocks have become attractive once more and have added key names.
Mr Zoellinger, who co-manages the BlackRock Continental European Income fund with Alice Gaskell, said his most recent buys had been in the consumer staples sector and he now had two stocks from the sector in the top 10 of his portfolio.
He said he had added to Anglo-Dutch multi-national consumer goods giant Unilever recently, meaning it has risen to a large position in the fund, having been a “low weight” in the portfolio.
Mr Zoellinger said the valuation had come back as the share had trended slowly downwards, and the ability to pick up such a “high quality company with a dividend yield north of 4 per cent is just too attractive to ignore from an income perspective”.
The shares in Unilever listed on the Dutch stock exchange have fallen by 5 per cent in the past year, according to data from Bloomberg, although recent weeks have seen a slight rally in the shares.
The other company that Mr Zoellinger has added to his top 10 is Ahold, another Dutch consumer staples firm. It is a food retailer that has a large franchise in the US, particularly around New England on the east coast.
Mr Zoellinger said he liked the stock because it had a “very stable business”, which in spite of not generating a huge amount of growth, was a “strong cashflow generator”, allowing it to pay out a 4 per cent dividend yield at a low valuation.
Mr Page said he had also bought into both Ahold and Unilever recently, though he said the move was based on his view of the individual stocks, rather than favouring the consumer staples sector as a whole. He said both Unilever and Ahold had appeared on his investment metrics as strong opportunities in recent times.
He said that the market had “neglected” the stocks, having become “obsessed” with other stories such as the cyclical recovery in Europe, and that now was a good time to add them.
Mr Page, who manages the Artemis European Opportunities fund along with Laurent Millet, has been making the most of his purchases within retailers more generally.
In addition to Ahold and Unilever, he has been buying into fashion retailer Hugo Boss, drinks company Pernot Ricard, and Eurocash, a cash-and-carry firm.
However, James Sym, manager of the Schroders European Alpha Income fund, said he was ignoring consumer staples because he thought they were still expensive, even after their recent share price weakness.
“Consumer staples did very well between 2008 and 2012 but the premiums they got to were egregious,” he said.
Mr Sym said the weakness in the sector had “only unwound about half of that premium” and he thought the stocks “do not deserve the premium that they still have today”.
Instead, Mr Sym said he was concentrating on stocks exposed to the economic recovery in Europe, where he thinks there are “domestic cyclical companies that can make 200-300 per cent in the next three to five years”.
