Investors should look beyond the conventional labels when looking for opportunities in European equities, says Invesco Perpetual.

As the firm thinks we have a long period of feeble growth to look forward to, the “defensive” and “cyclical” labels will lose their meaning as a result.

The European equity team at Invesco thinks there is a need for a new view of what constitutes a safe asset in today’s volatile environment.

“The recent sell-off in commodities and the Swiss franc together with other previously perceived safe havens has shown that safety is not a steady state,” Luke Stellini, European product director at Invesco, said in an investment note.

A mix of defensiveness and value

Stellini points out that mass flights into what is perceived as safe assets can cause valuations and risk premiums to rise and in that way raising the risk of losses when trades unravel as a result of a challenge to accepted wisdom.

Invesco’s report highlights that food producers’ relatively defensive business and exposure to growing emerging markets have made them attractive, but that this growing consensus has caused their price-earnings ratio to approach all-time relative highs. This high valuation raises the risk of steeper corrections than for less highly valued sectors if the consensus were to come under threat, according to the company’s equity experts

Invesco will avoid so-called defensive investments when its team senses valuation risk, and change focus to those with an attractive combination of defensiveness and value. That combination is currently seen in pharmaceuticals, Stellini said.