Since global equity markets began their downward spiral in April, all sectors have underperformed the FTSE All Share.

This depressing statistic can partly be explained by the fact that the All Share is a value-weighted index and has therefore been disproportionately elevated by the relative outperformance of the largest companies in the market. The 10 largest stocks in the UK account for 42% of the market capitalization of the FTSE All Share and nine of them have seen a rise in share price over the past year. All but three of the FTSE 100 stocks that have been in positive territory over the past year belong to the top half of the market, which accounts for 80% of the size of the FTSE All Share.

Taking the average performance of the FTSE All Share on an equal weight presents a less gloomy picture of the performance of individual sectors.

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The energy and utilities sectors have held up particularly well since the start of the sell-off, with industrials and financials (excluding collective investment vehicles) also performing decently. In contrast, basic materials and consumer cyclicals performed particularly poorly.

The flight to safety

The strength of the energy sector is easily explained by rising prices. Supply constraints along with persistent demand have pushed up the price of oil and gas, which has been reflected in the profits of these companies. The fact that many of these companies were trading at relatively low multiples until the end of last year only added to their relative outperformance. While there is no doubt that continued pressure for more renewable alternatives to oil and gas will be brought to bear on major energy companies, demand is unlikely to decline any time soon.

Rising wholesale oil and gas prices should have hurt UK utilities, but the removal of the energy price cap helped soften the blow and investors took the plunge. The defensive characteristics of the sector could be questioned by the mainstream media (rising costs could leave many UK residents unable to pay their bills this winter), but in reality UK-listed utility companies are among the most reliable in the event of a sale, which explains the relative outperformance of the sector since the beginning of the year.

In the event of a sell-off, investors tend to turn to defensive sectors, which are perceived as relatively resistant to recession (healthcare, food, etc.).