It is harder and harder for mixed asset investors to rely on one sector to provide a strong defensive edge for their entire portfolio, Citywire A-rated Asbjørn Trolle Hansen has said.
Hansen, who is head of multi-asset at Nordea, said he is finding it more challenging to find defensive stocks at reasonable valuations.
This, Hansen said, has seen him adopt a more bottom-up approach in his Nordea 1 - Stable Return Fund, with particular attention to the fixed income sector.
‘The signal that we get is that the defensive value is not in one sector anymore,’ Hansen told Citywire Global. ‘From a global perspective we see value on the fixed income side. US-treasuries are getting attractive again.’
Meanwhile, Hansen, who previously suggested government bonds have lost their diversification capabilities, has altered his allocation here.
‘Since May last year yields have been coming up a bit, so we are trying to allocate a bit out of safe government debt in Europe into US treasuries, especially towards the backend of the US curve which is decent,’ he added.
‘The five year to ten year part of the US curve has a 4% yield and for a double AA, or triple in reality, rated investment I think that is not too bad.’
Elsewhere, Hansen said he has looked to reduce his high yield exposure for tactical reasons.
‘We are only in high yield now because of tactical reasons, because defaults look exceptionally low, but in the strategic allocation concept we exited high yield, as the yields there are the same or even less than we expect roughly on US treasuries at the moment,’ he said.
Cold on classic consumer staples
In the last year, Hansen has rotated out of consumer staples and lately allocated more capital to US utilities, he said.
`We have been reducing the classical consumer staples,’ he said. ‘Investors think you have consumer staples and you are protected, but that doesn’t work anymore.’
‘There is not a quality risk on the sector, but a valuation risk. That is why we have allocated out of Nestlé and the likes, because it just has gotten too expensive,’ Hansen said.
‘We have allocated a bit into utilities in the US lately, which is a slight increase. It is more the distribution part of the utilities value chain than the energy producing part, which still looks stable.’
‘In Europe and Japan you have this nuclear discussion, so you have a question marks over the robustness on earnings, but US utilities have very transparent cash flows and now they have become a little bit cheaper.'
According to the most recent data, consumer staples make up 6.6% of sector exposure. Meanwhile, utilities, which had zero exposure in 2012, now account for 6.4% and energy makes up 3.5%.
Over the last three years till end of January 2014, the Nordea 1-Stable Return Fonds returned 15.84%. The average manager in the Mixed Assets-Absolute Return sector returned 6.44% over the same timeframe.