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DPZ sells out of defensive funds on US recovery hopes
by Danielle Levy on Aug 08, 2013 at 13:49
Jersey-based boutique DPZ Capital is backing the US recovery to surprise on the upside and is positioning private client portfolios to benefit.
The team has upped exposure to US cyclicals in its balanced model, particularly US small and mid caps, after selling down positions in funds that have typically had more of a defensive bias. These include Terry Smith’s Fundsmith and Veritas’ Global Equity Income , run by Charles Richardson and Andy Headley. DPZ shifted some of this exposure into the iShares Russell 2000 ETF.
Deputy CIO Rohit Ahluwalia added the firm’s balanced model has a healthy exposure to the US dollar, which they expect can strengthen further as the recovery gathers speed.
‘We think the US consumer is going to be a huge beneficiary of a capex boom that is purely a result of the business replacement cycle in the US. We have seen a lot of talk over the last six to nine months, with a potential housing boom also a key driver,’ Ahluwalia said.
‘This has a direct impact on the US consumer. To play this, we have started rotating out of defensives, although we have not completely sold out as they are still at the core. We are looking at cyclicals and small to mid caps in the US as a potentially attractive opportunity,’ he added.
Although the sequester and budget cuts have been viewed as headwinds, the investment manager views them as a positive as it is helping the US’s balance sheet to improve.
The team opted to take risk off the table back in late February and March, albeit slightly early, reducing exposure to developing and European equity markets on the expectation that in the event of a sell-off these areas would be hit hardest.
Ahluwalia describes the market reaction to QE tapering talk by the Federal Reserve as ‘completely overblown’, opting to hold steady with his asset allocation calls through the market sell-off. Allocating to long/short credit funds ahead of the correction following the tapering announcement has paid off, Ahluwalia said, through holdings in the Bluebay Credit Alpha Long Short and Ignis Absolute Return Government Bond funds.
The team has also taken the opportunity to increase credit exposure within its 32.5% bond allocation, particularly to financial sector high yield.
Over the last six months, the team increased its allocation to alternatives, particularly market neutral strategies, which also helped to protect portfolios from a broader market sell-off. Holdings include the GLG European Long Short and Old Mutual Global Equity Absolute Return.
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