Cyclicals struggle against a slowing economy

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Cyclicals struggle against a slowing economy. We don't spend any time assessing whether stocks are part of a yield trade. We look at the total return offered by individual securities. In a low growth and low interest rate environment we think that defensive, higher yielding securities will look increasingly attractive in absolute (and relative) terms. Domestic cyclical stocks by contrast are facing the flow-on effects from lower growth across the economy, which can reduce current earnings and future growth. To some extent forecasts of lower growth have already led to lower security prices. Whether they are sufficiently attractively priced to warrant investment depends on the individual security. Sometimes it is simply too difficult to assess whether a security has a sufficient margin of safety to warrant purchasing while the headwinds remain.

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