Large-cap defensives rally may be built on sand

ON UK INCOME

Political uncertainty caused by the eurozone crisis has polarised the UK equity market between large-cap defensives and their mid/small-cap peers.

The blue chip rally is understandable to an extent, as investors seek stability above all else at a time of heightened volatility. However, signs are emerging that for many large-cap defensives, this rally may be built on sand. A screen of our Matrix quant model shows large-cap defensives often scoring badly on earnings momentum and balance sheet measures (both of which are set to be key drivers of share price performance). One sector example is utilities. Having seen their valuations expand in recent months on the basis of their relative safety, utility stocks are vulnerable given their...