(Bloomberg) -- The selloff in cyclical stocks this year has created opportunities in some economically sensitive sectors even as risk aversion continues to dominate investors' decision making, according to UBS.
Semiconductor stocks could benefit from fears about a combination of slow economic growth and high inflation while rising interest rates offer a counterbalance for the financial sector, strategists Alastair Pinder and Keith Parker wrote in note to clients on Tuesday.
“Risk-reward increasingly favors taking a more neutral stance on cyclicals vs defensives and focusing on relative value industry group winners,” they said. “Analysis shows that risk aversion/VIX is driving performance much more so than macro factors.”
Cyclical stocks are among the worst performers this year as investors have rotated into defensive sectors amid fears that the Federal Reserve's efforts to tame inflation, combined with high energy prices and the war in Ukraine could push the economy into a recession. Chip-related stocks in the S&P 500 Index have fallen 20% in 2022 while the insurance and utilities groups have each gained more than 6%.
In addition to select cyclicals, the UBS strategists recommended investors have higher exposure to technology, real estate investment trusts and health care while cutting positions in materials and industrials.
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