Utilities – a contrarian opportunity

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Written by Sebastian Wanke | 13 April 2015
Posted in Special research

sentix Sector Sentiment for European utilities stocks falls further and now stands close to its all-time low. At the same time the sector’s performance stabilises. As a result, a contrarian opportunity arises.

In April, sentix Sector Sentiment for European utilities stocks falls to -2.4 standard deviations (see “Background” on next page). Currently, this is the worst sentiment among investors measured by sentix (see graph). In addition, the indicator now has almost reached its all-time low dating from August 2013 – which was then the beginning of a longer period of outperformance for the sector (see graph)!

20150414 iif utilities eng

At the same time prices do send positive signals, too: The European utilities future has climbed to a new high in the year running, and the sector’s relative strength now trades in a support zone. Consequently, the present sentiment extreme – which taken for itself sends a contrarian buying signal – also falls on a fertile ground from a chartists’ perspective. The chances that utilities stocks will outperform over the coming weeks are thus rather good.

Background

sentix Sector sentiment is a monthly survey being conducted since 2002 among individual and institutional investors via the internet. The survey is run around the second Friday of each month. Investors are asked about their six-month expectations regarding 19 European stocks sectors. They can indicate whether they expect a sector to outperform, to perform as the market or to underperform. The survey results are normalised over all sectors and calculated as so-called z-scores. Z-scores are standard deviations from the mean of a given sample. A value of +1 for a sector sentiment means, for instance, that the expectations for the sector stand one standard deviation above the mean expectation for all sectors.

The current sentix Sector Sentiment survey was conducted from April 09 to April 11, 2015. 973 individual and institutional investors took part in it.

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