Cyclical stocks

The performance of cyclical stocks is heavily dependent on the economic cycle – they do well when the economy is booming but very badly when it falls off a cliff. A classic example would be housebuilders, all of whom have done well in the UK over the last ten years in a benign environment of low interest rates and high demand. However, when the economy falters, as interest rates and unemployment rise, these shares all take a battering, whether the underlying building company is good or bad. Counter-cyclical (or ‘defensive’) stocks, such as utility and tobacco companies, tend to perform consistently whether the economy is doing well or badly. This is largely because they supply a product which is regarded as a staple – people who smoke do so in good and bad times – demand for which is not highly correlated with the state of the broader economy. A balanced portfolio should contain a mixture of cyclical and non-cyclical stocks which can be altered as the economic climate changes.

• See Tim Bennett’s video tutorial: What are defensive stocks?

MoneyWeek magazine

Latest issue:

Magazine cover
The dollar's going up

Why your British stocks will follow

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Hedge fund manager Hugh Hendry: 'It felt like the sun rose only to humiliate me'

In a series of three short videos, Merryn Somerset-Webb talks to Hugh Hendry, manager of the Eclectica hedge fund, about everything from China to the US, Europe, and Japan.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


17 December 1900: The Guzman Prize is announced

On this day in 1900, Clara Guzman stumped up 100,000 francs prize money for the first person to communicate with and receive a response from another planet.