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A predilection for healthcare stocks has bolstered the performance of the £4bn Fidelity European fund during the global downturn, according to manager Tim McCarron.

Mr McCarron said that, as the economic outlook deteriorates across the globe, he has increased his exposure to the healthcare sector, which has traditionally been less sensitive to economic volatility.

"With an unstable backdrop, I have taken a more defensive stance," he said. "I have also increased my sector bets, with large overweight positions in defensive sectors such as healthcare and utilities, and a large underweight position in financials and especially banks."

Mr McCarron said it was actually the underperformance of the healthcare sector - due to factors such as the high number of drug patents due to expire in 2011 and the US presidential elections in the middle of the second quarter - that presented a good opportunity to buy stocks. These factors are now priced into shares, he said.

"If the US dollar were to strengthen, this would further boost European healthcare stocks because about 40 per cent of their revenue comes from the US. Moreover, the demand for these types of products is rising globally, yet there are high barriers to entry and a notable lack of substitutes."

The main stocks Mr McCarron has bought include Novartis, Roche and Grifols, a company that specialises in blood plasma derivative products, which are generally unaffected by overriding economic conditions, as people who require them tend to act independently of the economic cycle. 

He said: "Where financials are concerned, until I see positive indications that the economic situation in Europe and the US will improve, I will steer clear of banks and real estate, but remain neutral in the insurance sector, which been unduly punished due to problems in the banking sector."

Mr McCarron said he was avoiding all oil consumers, such as autos and airlines, which are directly affected by higher oil prices, as well as consumer discretionary stocks including media, travel and leisure, as falling residential prices and a lack of credit are leading to a fall in consumer spending.

According to Morningstar, for the year to 28 July 2008, the fund lost 9.7 per cent against the IMA Europe excluding UK sector average loss of 14.8 per cent. Over the same period, the fund is ranked seventh out of 97 funds.