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Allianz sees shift to cyclical from defensive

European equities in cyclical sectors are far more attractive than defensive stocks, according to Klaus Teloeken, Allianz Global Investors’ managing director and chief investment officer for systematic equities.


European cyclicals have cheaper valuations than their US counterparts and they are starting to see upward earnings revisions, Teloeken told FSA.

US stocks are more expensive not necessarily due to valuation overruns, but because on average US corporations are more stable than elsewhere, he said. 

“There’s always a premium for more stable business models, which the US has more of, so that’s why it is not always a sign of the US being expensive.”

However, even accounting for stable business models, some US equities are relatively more expensive than European ones. According to Teloeken, there is still room for some European businesses to re-rate further, especially in the cyclical and financial sectors as economic growth in the Eurozone continues.

Asian cyclical stocks are also attractive, he added.

Style investing

Under Allianz’s “systematic equities product suite”, the fund managers invest according to various “styles”, which include value, revision, momentum, growth and quality.

Two of these strategies are available for retail sale in Hong Kong and/or Singapore — the Allianz Best Styles Euroland Equity and Best Styles Global Equity funds.

For the Euroland fund, the styles point to European cyclical stocks, which tend to do well during times of economic growth.

Incepted in 2007, the Best Styles Euroland Equity Fund’s three largest sector allocations are in banks (11.3%), industrial goods and services (9.9%) and chemicals (7.7%), according to its factsheet.

Down on defensive 

On the flipside, Teloeken does not like defensive sectors in Europe and in Asia.

“Defensive sectors have been very expensive because the economic outlook has been fragile for most of the past five-to-six years,” he said, adding that the valuation spread between the cyclical and defensive sectors is huge.

The case is different in the US as its economy is doing much better than Europe.

“In the US, our portfolio is in a way more balanced. We still found a number of attractive defensives,” he said, adding that telecommunications and utilities in the US are cheaper than European ones. However, he is struggling to find opportunities in consumer staples in the US as they are very expensive.

Incepted in June 2014, the Best Styles Global Equity Fund’s largest country allocation is the US (62%), followed by Europe ex-UK (11.1%) and Japan (9.6%), according to its fund factsheet. The fund’s largest sector allocations are in IT (18.2%), financials (17.8%) and consumer discretionary (12.4%).


The three-year performance of the Euroland Equity Fund and the one-year performance of the Global Equity Fund versus their benchmarks, according to FE data.

Like their benchmarks, the funds clearly declined after the Brexit vote in June and the US elections in November, but have since rebounded. 



Part of the Mark Allen Group.