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Cazenove's Dean avoids cyclical commodities as China slows
Julie Dean, fund manager at Cazenove, is avoiding cyclical commodities as Chinese growth slows
The slowdown in China’s economy is of major concern to investors across the world as the days of double digit growth appear to have come to an end.
With the country’s rapid expansion, demand for commodities like copper and steel grew, as construction boomed. However some investors are shying away from the sector, fearing the downturn in Chinese growth will see cyclical commodity stocks slump.
Dean explains: ‘If I look at the structure of the portfolio now, one area of active risk is our underweight positioning in commodity cyclicals.
‘If there was to be suddenly significant monetary loosening in in China, which we felt would lead to a significant re-acceleration in growth which would be led by construction, then it is likely that some of those commodity stocks would start to perform better than they are at doing at the moment so that’s something that we’re aware of and we know what risks we’re taking.’
The position reflects how Dean manages her holdings by focusing on the economy and the business cycle. She says: ‘It’s all about understanding how economic growth is changing and how that’s going to affect different companies. Having a view on that tells us which part of the stock market we should own and sell.’
Dean is an AA-rated Citywire manager and oversees the UK Equity and UK Opportunities funds at Cazenove, which have the same holdings for UK and overseas investors and both funds aim to outperform the FTSE All-share index by 3%.
Dean says, ‘We’re trying to generate consistently superior returns, so not blow the lights out one year and be fourth quartile next year. What we’re trying to do is give consistency with relatively low risk as well.’
The sole aim of the fund is to outperform the index, making it unrestricted in terms of stock selection. ‘If you buy a stock one day and the next it gets bid for, and you think that fully reflects the value of that stock you’re not obliged to hold it for any longer so I don’t worry about holding periods’, she explains.
The UK Opportunities fund returned 109.5% over the past three years to beat the benchmark FTSE All-Share index’s total returns of 75% over the same period.
Cutting shares in Compass
Shares in catering company Compass fell in March when it announced the tough economic climate in the UK and southern Europe would impact its first half profits.
However Dean had foreseen some of the challenges and started to sell the stock before the announcement.
More about this:
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- Sage Group PLC (SGE.L)
- Compass Group PLC (CPG.L)
- International Consolidated Airlines Group SA (ICAG.L)
- Easyjet PLC (EZJ.L)
- Babcock International Group PLC (BAB.L)
- Cobham PLC (COB.L)
- Legal & General Group PLC (LGEN.L)
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