In recent weeks there have been some hints that defensive stocks might be coming back into fashion. One piece of evidence for this is the outperformance of the FTSE 100 relative to its European, US and Japanese counterparts since the middle of August.

The composition of the UK’s flagship index is on the stodgier side, but its lower representation in growth areas like technology has been something of a virtue of late as the index has reached new highs above the 9,300 mark.

As Ian Conway’s News article makes clear, the Trump administration’s apparent meddling in the workings of the Federal Reserve is not being taken well by the market, making a renewed case for having some ballast in terms of defensive stocks in investment portfolios.

As a reminder a defensive stock, unlike a cyclical one, is not correlated to the business cycle. It is  a firm whose revenue and profit are not overtly impacted by the state of the economy, typically because demand for its products or services is relatively steady.

Because revenue and therefore profit and cash flow are stable, defensive stocks are usually in a position to maintain a consistent dividend policy – offering shareholders a regular and secure income.

Yet, for now, European defensives are, according to Bank of America number crunchers, trading at a 17-year low relative to the market and cyclical stocks are at a 30-year high relative to defensive names.

They note: ‘We see scope for a rotation out of cyclical winners and into beaten-up defensives: the cyclical sectors with the strongest negative correlations to risk premia have been the key winners over the past 12 months, including capital goods and construction materials, while the defensive sectors with the highest negative correlation, including pharma and food & beverages, have been particularly weak.

‘If the weakness in US final demand growth continues to soften and risk premia rise, we think this pro-cyclical performance skew is likely to reverse.’ 

This week’s issue includes some fund ideas for someone investing in retirement as well as a look at why Shanghai’s SSE Composite index is trading at a 10-year high.

The outperformance of this domestically focused collection of companies relative to other Chinese indices shows the importance of getting into the granular detail when it comes to how markets are performing. It’s also a reminder for ETF investors, for example, to look closely at the index their chosen product Is tracking.

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