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European Consumer Staples: Resilience with Growth Upside
- In a challenging year, the European Consumer Staples sector has afforded portfolios a degree of stability.
- With COVID-19 still likely to affect markets heading into 2021, investors may stand to benefit from the resilient business models, organic growth and low volatility tilt.
- Despite the environment in which safer exposures may typically be preferred, the P/E of European Consumer Staples relative to European equities recently fell to a 10-year low.
Resilience in a Still Difficult Environment
It goes without saying that 2020 has been a difficult year for European equities. MSCI Europe has lost 5.3% YTD (as of 18 November 2020) despite the rally. With the beginning of the autumn, the continent entered a new phase of lockdowns, which had harmed most sectors during the first wave of COVID-19.
Recent news on successful vaccines has provided long-awaited relief; however, before any vaccine deployment, countries still need to face restrictions. Brexit negotiation and transition, particularly in the near term, is another threat to European economies. Against this backdrop, investors may require a degree of protection and stability, which can be found within equities.
We believe that the European Consumer Staples sector, with its resilient business models, organic growth and strong low volatility tilt offers such protection. In addition, the sector allows investors to participate in a potential recovery, particularly through the beverages and beauty product segments, once a vaccine is successfully deployed and economies open up again.
Importantly, despite the period of still elevated uncertainly ahead, Consumer Staples’ valuation screens attractively when compared to the broader European market. In addition, the earnings yield of the sector is well supported by historically low government yields. Finally, the diversified geographic breakdown can help to alleviate the impact of local idiosyncratic events such as regional lockdowns.