Should investors stick with UK defensives as austerity bites?

Clive Beagles, manager of the £880m JOHCM UK Equity Income fund, has warned classically defensive stocks could be dangerous prospects for the next 12 to 18 months as fiscal austerity takes its toll on the UK economy.

Speaking after Chancellor George Osborne announced lower growth forecasts and higher public borrowing in his Autumn Statement, Beagles said “pessimism is rife” in the UK, and fiscal consolidation could even impact on less cyclical sectors. “If austerity bites, tobacco companies and utilities are going to get hit. Classically defensive stocks could be quite dangerous for the next 12 to 18 months. “Additionally, there are few areas where corporate balance sheets have not yet adjusted to the downturn, but this is the case with classic defensives such as National Grid and SSE," he said. ...