An equity portfolio manager is evaluating her sector allocation strategy for the upcoming year. She expects global economic slowdown for the next two years. Further, she believes that companies will be facing diminishing growth rates with respect to revenues and profits. Owing to these beliefs, the portfolio manager will most likely:
B is correct. Non-cyclical companies produce goods or services for which demand remains relatively stable throughout the business cycle. The consumer staples sector exhibits relatively less economic sensitivity and thus tends to be over-weighted during economic slowdowns and when revenues and profits are expected to be under pressure.