The old adage "the best defense is a good offense" is wise advice for investors in 2010, says Simona Paravana, global investment strategist, HSBC Global Asset Management.
"When we look at sector valuations at the global level, one of the themes that really stands out is the fact that more defensive sectors, such as telecom, healthcare and utilities, are really at the top of the chart on the "cheapness" scale," she said in an interview Monday.
Historically, defensive names – particularly healthcare, says Ms. Paravani – trade at a premium to the market, largely based on their ability to offer earnings stability.
At the end of December, however, all three sectors traded at a forward earnings multiple of between 12x to 13x. By comparison, consumer discretionaries were trading at roughly 18x and industrials at 16x. Meanwhile, the MSCI World versus consensus 2010 earnings was 14x at year end.
Over the next twelve months, she expects new leadership from these defensive sectors, at the relative cost of cyclicals which have hogged the spotlight over the past twelve months.
Rather than viewing asset allocation as a choice between equities versus fixed income, Ms. Paravani see more potential playing within asset classes. For stocks, that means a more defensive stance moving forward.