What are European super sectors?

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When we are looking for stocks to invest in, we usually choose the ones we know. For investors in the UK, this could be the best players in FTSE, or maybe one of the big tech companies in the US. But what role do our favorite stocks play in the industry at large, and what does it look like elsewhere in Europe?

Knowing how the markets we invest in are organized can be a great tool in determining if a potential stock has a lot of competition in its region, where the opportunities are, and which countries are likely to be affected by booms and economic downturns. . To give a little depth, we have grouped the European markets under our cover and broken them down by “super sectors”.

What is a super sector?

We often talk about the sectors in which a fund invests, such as financial services, healthcare or technology. We have 11 sectors, ranging from tech to health, but to make the map more readable, we use our super sectors to color the map: cyclical, sensitive and defensive.

But what does that mean? When the economy is booming, cyclical industries tend to thrive. Likewise, they tend to contract when the economy is in recession. Categories that respond to markets like this include financial services or real estate. Defensive industries provide services that consumers need in good times and bad, such as healthcare and utilities. And sensitive industries fall between defensive and cyclical industries because they are not immune to a poor economy, but they also may not be as badly affected by a poor economy as cyclical businesses. Technological and industrial companies are good examples.

To explore the markets in Europe, we used the Morningstar indices for the countries we cover in order to obtain an accurate representation of the weight of each stock in a market. Each annotation also shows the return of this index so far this year.

Cyclic regions

For most European countries, cyclical companies reign supreme. This includes large economies like the UK, Germany and Italy, but also Hungary and Greece. Despite this, the UK’s number one sector is consumer defense due to companies like Unilever (ULVR) taking up a large portion of the FTSE – 17.72% of the market falls into this category. However, the cyclical sectors of financial services (16.38%) and industrials (11.19%) come in second and third place.

Germany, for its part, has cyclical consumption as the first category and industry as the second, with 18.77% and 15.89% respective shares of the German market. Technology is also a big part of the market, at 14.26%. And financial services represent a significant share of the rest of the cyclical countries: 59.98% in Hungary, 36.12% in Poland and 29.38% in Italy. Ireland remains the biggest outlier in the cyclical category, with a large chunk of the index divided into consumer discretionary (32.01%), basic materials (29.40%) and defensive consumption (18.37%). ).

Defensive regions

The predominantly defensive countries are Denmark, the Czech Republic, Switzerland and Portugal. Denmark and Switzerland have a common love for health actions, which rank first for both countries. Almost half of the Danish index is made up of healthcare stocks at 47.62%, with Novo Nordisk (NOVO), Genmab (GMAB) and Coloplast (COLO B) being among the largest companies in the country. In Switzerland, healthcare occupies 36.51%, Roche Holding (ROG) and Novartis (NOVN) being second only to Nestl̩ (NESN), which is part of the defensive consumer category Рthe second largest sector in Switzerland.

On the other hand, Portugal and the Czech Republic rely heavily on utility companies, which represent 61.03% and 47.22% of the markets respectively. The Portuguese coast is blessed with abundant natural advantages including wind and sun, making it an ideal location for energy companies like EDP – Energias de Portugal (EDP) and Galp Energia (GALP). The Czech market, on the other hand, could almost be seen as a duopoly between utilities and financial services (43.48%), the two together accounting for 90% of the market. CEZ (CEZ) and Komercni Banka (KOMB) are its largest companies.

Sensitive regions

Apart from Denmark, the Nordic countries are largely sensitive countries, as are Russia, France and the Netherlands. Norway’s top three includes the sectors of the three supergroups, as well as Sweden and Finland such as industry and technology. Half (50.50%) of the Russian stock market is made up of energy companies, and financial services and basic materials account for an additional 40%.

The Netherlands, which despite its size is the seventh largest economy in Europe, is the only market where technology reigns. It also holds a significant market share: 47.11% of the index is made up of technology stocks (with ASML (ASML), Adyen (ADYEN) and Prosus (PRX) in the lead). France presents a more balanced distribution between sectors: industry at 23.13%, cyclical consumption at 18.59% and health at 11.13%. This reflects its three main values: LVMH (MC), Total SE (TTE) and Sanofi (SAN).


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