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.
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.