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Aberdeen's Docherty awaits market falls before cyclicals spree

Stephen Docherty is happy to keep the Aberdeen World Equity fund full of defensive, high-yielding blue while the markets reel on political uncertainty.

Aberdeen's Docherty awaits market falls before cyclicals spree

Aberdeen World Equity manager Stephen Docherty sat on his hands through June as the volatile economic and political backdrop caused further swings in global equities.

The £285 million fund is a recommendation of Citywire Selection. It has been defensively positioned in capital-preservation mode for months, and the only activity during the month was to add to Samsung Electronics on price weakness.

Selling Rio Tinto after a strong run

This followed a move out of diversified miner Rio Tinto (RIO.L) in May after a strong run, with the proceeds reinvested in an increased stake in Canadian-listed Potash Corp and Brazilian miner Vale.

'This is a time to make sure your focus is on the way that a company's business model runs, and you need to be certain that it can withstand a prolonged period of slowdown. Much of our focus remains on the downside risk, but there comes a point where valuations of cyclicals look attractive again, although we are not there yet,' Docherty said.

To this end, the fund remains full of defensive, high-yielding blue chips, with Vodafone (VOD.L) the biggest holding at the end of June at 4.4% of the fund.

The fund has lagged its index slightly since the start of the year as it failed to benefit from the relatively indiscriminate LTRO-driven global markets rally of the first two months of this year. Since then, the fund has slightly outperformed in choppy markets, as Docherty said the market had moved back to focusing on value again.

Tobacco stocks Philip Morris and British American Tobacco (BATS.L) made up 3.5% of the fund each while pharmaceutical giants Roche and Novartis were also in the top 10 at the end of June. Swiss firm Zurich Financial is also top-10 position at 3.1% of the fund.

Refocus on cyclicals if market falls hard

Docherty admits that although the low-growth deleveraging cycle could continue for some considerable time as politicians continue to dither over decisive fiscal action, fund managers need to be aware of when cyclical equities, meaning those that will rise and fall in line with the broader market, could suddenly become attractive again.

'If the next sell-off is a large one, we would be looking closely at the cyclical space again,' he said.

He also admits that some of the 'big and boring defensives' such as tobacco stocks look no longer cheap, although he is comforted by the continued strength of their dividend payouts.

The biggest overweight at the end of June remains consumer staples, while the fund has just 1% in consumer discretionary stocks, which have been hit hard by the latest global slowdown. Even here, the 1% comes in the form of the world's largest cable group US -listed Comcast, which Docherty says displays classic defensive and structural growth qualities.

Over five years to 6 July, the fund has returned 25.41%, compared with 14.89% from the FTSE World benchmark index.

Citywire Selection verdict:

Under Stephen Docherty’s stewardship, the fund has beaten its index in seven out of the past eight calendar years. Another year of outperformance has been clocked up through defensive holdings in key tobacco, pharmaceutical and telecoms stocks. Docherty tends to make few changes in the portfolio and in this tough economic environment is sticking to large, cash-generative companies that are leaders in their field.

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