Weary of the market rollercoaster, investors turn again to steady stocks

Fri Nov 21, 2014 8:04am EST
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By Francesco Canepa

LONDON (Reuters) - The big story of recent stock market investment has been volatility, and the opportunities that sharp price swings can bring for those with strong nerves.

But good news is emerging now for those who prefer safer strategies: some of the best returns this year have come from stable stocks like billionaire Warren Buffett's holding company Berkshire Hathaway (BRKa.N: Quote) or Swiss toilet maker Geberit GEBN.VX.

A basket of the two least volatile stocks in each STOXX Europe 600 .STOXX sector index, as compiled by Thomson Reuters, up 8 percent year to date, or almost twice as much as the STOXX Europe 600 overall. (Here volatility is defined by the size of price moves in either direction.)

Though that high performance might seem odd - particularly looking at double-digit returns yielded by other European stocks that see-sawed at the prospect of a U.S. interest rate hike recently - in fact it demonstrates that low-volatility stocks are often stronger companies with healthier earnings power.

That distinction really matters when European companies' earnings recovery is still vulnerable - and it's one that more people are waking up to.

"Investors are ready to invest on the equity market but under the condition that they are not too exposed to risk and that’s one argument for investing in the least volatile stocks," said Laurent Lagarde, head of quant equity management at investment firm THEAM, a unit of BNP Paribas.

    The Reuters basket included traditionally defensive stocks like drugmaker Novartis, up 29 percent, but also benefited from similar gains by cyclical companies - those whose profits and share prices track the pace of the economy. Among those were Givaudan GIVN.VX, the world's biggest maker of flavours and fragrances, or media group Reed Elsevier (REL.L: Quote).

Stocks from Switzerland - home to reliable earners such as Geberit - accounted for 13 out of 38 components.   Continued...

An investor reacts in front of an electronic board showing stock information at a brokerage house in Taiyuan, Shanxi province, May 9, 2013.  REUTERS/Jon Woo