Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

AAA-rated Dean: the cyclical stocks I’ve been buying

AAA-rated Dean: the cyclical stocks I’ve been buying

Julie Dean, manager of the Cazenove UK Opportunities fund, has taken profits in defensive stocks and is buying certain cyclical companies on the back of attractive pricing.

The Citywire AAA-rated manager said cyclically-oriented stocks have fallen sharply because the US market has stopped surprising on the upside recently.

She said: ‘So we think some of these riskier assets offer a better risk-reward profile than they did, also in the event that there could be further policy reaction.’

Dean has taken profits and exited positions in certain defensive companies that have performed well, as earnings multiples in these areas are also relatively high.

‘We’ve sold Compass Group, Tate and Lyle, and SAB Miller,’ said Dean. ‘We’ve completely sold out of these. We’ve taken that capital and said “do we think there are better opportunities in the more cyclical and value end?”’

With these profits, Dean has increased her exposure to fund groups, adding to Jupiter and buying Schroders.

‘We’ve started buying domestic banks – a small amount of Barclays and Lloyds,’ said Dean.

She said she has also started to buy International Consolidated Airlines, which was trading at around £1.80 due to concerns that Bankia had a stake in the firm. However, as Dean explained, oil prices have come down while passenger demand is still robust, supporting its risk-return profile.

Dean urged that, in current markets, paying too much attention to index levels can make you less aware of the dispersions at an individual stock level.

For example, in May, while UK indexes had fallen, defensives performed strongly with media telecoms up over 9%, while the weakest sectors were down around 11%. ‘So high dispersions in returns present opportunity,’ added Dean.

She said Perform Group and Booker have both been strong performers in her portfolio, the former being a media growth company which Dean has owned since the end of last year, the latter being a cash and carry firm which recently bought a rival, Makro UK.

‘One thing quantitative easing has done,’ said Dean, ‘is leave asset prices high so banks can exit bad loans. But it has also prevented a lot of companies that were going bust, from doing so.

‘So companies with cash and strong balance sheets can pick up assets that are properly distressed or where banks are letting them go.’

She added Howden Joinery, which she owns, has seen its competition diminish, in the form of Magnet, which was acquired by Swedish firm Nobia.

Although further monetary stimulus would serve to boost risk assets, Dean said she does not agree further quantitative easing is a good move.

‘What QE has done is create risk on/risk off in stock markets around the world,’ said Dean. ‘If you print money – it will find its way into asset prices.

‘The first round of QE was correct – the governments need to steady the sinking ship of the economy. But there have been less clear returns from each subsequent QE. The risk is that there will be diminishing returns from QE.’

She added: ‘I don’t think more QE will work. We don’t know what the economy would’ve been without it; but even with it, the economy hasn’t grown.

Over three years, Cazenove UK Opportunities has delivered 74.6%, far out-stripping the benchmark’s 37.4% in this time.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Investment Pulse: the highs and lows of 2014

Investment Pulse: the highs and lows of 2014

This week's Investment Pulse looks back at some of the biggest stories of the year as well as looking forward to 2015.

Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter