Alliance Trust Plc, the U.K.’s largest closed-end fund, is picking so-called defensive stocks with high dividends as global growth is hindered by Europe’s debt crisis, Chief Executive Officer Katherine Garrett-Cox said.
Unilever, the world’s second-largest consumer-goods maker, and Sanofi, France’s biggest drugmaker, are among the Dundee, Scotland-based investment trust’s top picks for this year due to their “good earnings visibility” and high dividend yield, Garrett-Cox said today in an interview.
“In the last six months we’ve become more defensive,” said Garrett-Cox, a former chief investment officer at Aberdeen Asset Management Plc and Aviva Investors. “The world is more uncertain than probably at any other time in my career.”
U.K. and European stocks have rallied the most since 2009 in the last three months after the European Central Bank allowed the region’s lenders to borrow three-year loans at low interest rates through its Long Term Refinancing Operation. The measure has not addressed the “root cause” of Europe’s problems, meaning a recovery is still far from certain, Garrett-Cox said.
“The LTRO was a very expensive way of giving the market the feel-good factor, but what happens when it is withdrawn?,” she said. “Europe is still flat on its back on its hospital bed. We think this is going to be a very long hard slog.”
The STOXX 600 Index of European shares dropped 1.4 percent today, the biggest fall since December, after the European Union’s statistics office said Europe’s economy contracted 0.3 percent in the fourth quarter. Private investors that declared their participation in Greece’s debt restructuring hold about 20 percent of the bonds involved in the swap, short of the 75 percent the nation’s government has said is required for the debt exchange to proceed.
“The biggest risk to the recovery is that fact that politics continues to dominate economics,” Garrett-Cox said. Aside from the European debt crisis, the withdrawal of quantitative easing in the U.K. and U.S. and increasing tensions with Iran are also potential risks to recovery, she said.
Unilever and Sanofi have inherent growth potential in spite of the difficult economic conditions, Garrett-Cox said. The fund manager said she has “high confidence” in Unilever to increase profit margins and likes the strength of the firm’s brands, which include Dove soap and Cif cleaning products. Sanofi’s growing presence in emerging markets, such as China, is one reason behind buying the stock, she said.
Unilever has a 12-month dividend yield of 3.8 percent, while Sanofi’s is 4.4 percent, according to data compiled by Bloomberg.
Alliance Trust’s net asset value fell 7.6 percent to 405.8 pence a share in the 11 months ended Dec. 31, it said today in a statement. The firm’s total shareholder return increased 19.2 percent to 364 pence after it increased its full-year dividend 3 percent to 8.395 pence a share