What's behind the defensive rally?

ON UK INCOME

This year so far has been an interesting and rather unique period for UK income investors. Happily, the IMA equity income sector has outperformed the FTSE All-Share. What is unusual is that it has done so in a strongly rising market, when historically income strategies as a group have tended to lag.

We normally associate income strategies with low beta defensive sectors and stocks, such as utilities, pharmaceuticals and telecoms, so outperformance in a firmly rising market is at odds with expectations. However, what we have seen in recent months could be described as a defensive rally. Some low beta stocks have performed well, while many high beta stocks (especially those exposed to resources) have been weak, dominating the list of FTSE 100’s poorest performers. The question, of course, is what is driving this role reversal. Concerns about the future pace of global growth, and th...