EU cyclicals: Is hedge fund deleveraging behind poor performance?

Poor performance from European cyclicals has been at odds with improving economies, but GAM's Niall Gallagher believes forced deleveraging from hedge funds is behind the stock price weakness.

Cyclical stocks have performed poorly over the past six to nine months despite robust fundamentals in areas such as Spanish media, European temporary employment, and Irish building materials (ex-cement). Companies in these sectors are benefiting from improving economies, but market moves over the past month have been technically driven, with many mid-cap stocks performing poorly. Volatility pick-up This not due to fundamental weakness, but rather as a result of a sharp pick-up in realised volatility, implied volatility, and factor volatility, which have led to a dramatic increase i...