The euro zone debt crisis will continue to dominate European stocks in 2012, with even well-run companies in danger of being sucked into the morass, according to S&P Capital IQ.
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The business research group highlighted the negative effect of the crisis on European equity fund managers, and argued that the performance of their funds had collapsed across the board in April after rebounding in early 2012 from 2011’s poor performance.
Mainstream funds — which manage investments for individual investors and pensions among other clients — were down 4.3 percent for the year to April 30 on average.
Most fund managers are now increasing their exposure to defensive stocks and raising their cash allocation to 5-10 percent of their assets as volatility returns to the markets.
“Whereas in 2011 it was widely recognized that good companies would overcome poor political governance, managers are now acknowledging that even good companies could be in danger,” warned Peter Fuller, fund analyst and sector head Europe at S&P Capital IQ.
There is renewed focus on managers’ top picks as many focus on a few carefully chosen stocks rather than risk the volatility in the broader market.
"The number of stocks held in portfolios have fallen very dramatically — in some instances by up to forty percent — and the concentration in the fund managers best picks, the top ten stocks, can account for up to nearly forty percent of the portfolio now," Linda Jane Coffin, director of S&P Capital IQ, told CNBC.