Some UK stocks may not be as defensive as investors believe

At one end of the spectrum, investors are crowding into popular stocks in sectors such as consumer staples, business services and engineering, pushing their valuations to ever higher levels.

These companies are believed to be high quality with defensive and predictable earnings streams, typically with little exposure to the UK economy. Yet most are now trading on valuation multiples far in excess of where they were at the top of last cycle in 2007. Moreover, while some of these companies, such as Unilever or Diageo, are genuinely defensive, others such as Spirax-Sarco or Halma do have exposure to cyclical-end markets meaning their earnings will not be immune in the event of a downturn. This combination of high valuation and earnings risk renders these stocks much less def...