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Schroders’ Matt Hudson slashes recovery stocks in defensive turn
by Robert St George on Feb 25, 2014 at 14:24
In 2009, they accounted for 30% of his fund and today that proportion is down to 4%. This has meant slashing exposure to popular areas such as housebuilders and travel companies.
‘Consumer cyclicals, being very early cycle, are less interesting to us. They have had massive reratings and done very well, but actually it is time to shift to later-cycle stocks,’ Hudson said.
‘We have really been shifting our portfolios away from some of the early-cycle cyclicals towards some of these more defensive assets.’
Hudson cites three examples of such opportunities. The first is catering company Compass, which is cyclical insofar as it benefits from a strong economy.
‘If there are more people employed in US factories because the economy is expanding, there are more mouths to feed and more money to make. So it has a cyclical element to it, but it also has a structural element as food services are being outsourced in increasing amounts.’
Hudson estimates 50% of the global market for feeding labour forces is now outsourced. He also points out that Compass exhibits defensive characteristics through the resilience of its earnings.
The fund manager supposes that if Compass made £100 million at the top of the cycle, at the bottom that might slip to £75 million, which would still keep the dividends flowing.
In contrast, he points out that if Rio Tinto made that same £100 million at the top, it would probably lose £100 million at the bottom.
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- Rio Tinto PLC (RIO.L)
- Barclays PLC (BARC.L)
- Compass Group PLC (CPG.L)
- BT Group PLC (BT.L)
- Legal & General Group PLC (LGEN.L)
- HSBC Holdings PLC (HSBA.L)
- Diageo PLC (DGE.L)
- BG Group PLC (BG.L)
- Bhp Billiton PLC (BLT.L)