Fund managers are welcoming the darkness, according to Bank of America’s latest survey.
The European fund managers' survey found 95 per cent of respondents - as close to a consensus as one will ever get in markets - anticipate a European recession in the next 12 months.
But they also expect the bottom to be reached in the second quarter of 2023, at which point they expect European equities to be good value, with 53 per cent of respondents seeing upside in the asset class over the next 12 months, compared with 39 per cent who felt that way last month.
But if this counts as bullish sentiment, it is a very small bull indeed, as the sector on which they have the biggest overweight is pharma which is typically a defensive exposure.
Indeed 28 per cent of those who responded said having insufficient defensive hedges within portfolios was the greatest threat to returns over the next year.
And on a broader level, 50 per cent of respondents expect quality and defensive stocks to outperform relative to cyclical European equities next year, though banks are now an overweight for a majority of respondents.
That latter is arguably a brave position as short sellers hover over some of the Swiss and German banking giants.
The average exposure to European equity funds among the allocators on our database is 5 per cent, with Quilter Wealthselect and Close Brothers, both at more than 7 per cent being among the outliers. Several firms, including Tacit and Wise, have a zero allocation to European equity funds.
The most widely held European equity fund among the allocators we cover is BlackRock Continental European Income, which is held in nine portfolios despite six allocators having sold it in 2022.
That fund certainly keeps up the pharma theme, with 18 per cent deployed in that sector, including two of its top 10 holdings.
Financials comprises the largest sector exposure at 23 per cent.
Pharma and financials are always likely to be prominent in a fund that has income as its priority, so it's worth comparing those allocations with the BlackRock European Dynamic fund, which is the second most widely owned, appearing in eight portfolios.
The fund, managed by Giles Rothbarth, is also materially exposed to healthcare, with both the top two holdings focused on that part of the market, and the sector accounting for 24 per cent of the mandate.