A Sector View Shows Popularity of Portfolio Diversification

A quick look at FTSE 350 stock sector performance for London listed stocks testifies the popularity of investors to diversify their portfolio holdings away from risk on associated stocks such as the miners and banks towards typical defensive safe haven sectors such as tobacco and utility stocks as the eurozone crisis escalates.

In uncertain times, investors typically diversify their stock holdings out of the riskier asset classes such as miners, banks and oil sectors. This is because in difficult times, these sectors are typically harder hit. That diversification typically see’s slightly higher demand for ‘defensive’ sectors such as pharmaceutical, tobacco and utility stocks, where demand for these types of products and services typically remain high, regardless of underlying economic conditions. So from the chart above, it would appear that this trend remains fairly consistent, with defensive stock sectors outperforming a 8% loss in the FTSE 100 and FTSE mid 250 Index for the same period (February highs to today).

Indeed, a standout performer is the FTSE 350 Gas Water and Multi-Utilities Index, where stocks such as Severn Trent and United Utilities reside. This sector has broadly outperformed all sector peers, rallying 5% despite the general stock decline seen across Europe.

So whilst spread bettors and CFD traders can take advantage of falling prices by short selling via our platform, for those clients who lack the appetite to go short, there remains the argument for portfolio diversification to limit the net downside bearish equity moves typically represent at times of market uncertainty.

You can follow me on Twitter via @Josh_Cityindex

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.