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The late cycle winners that Cazenove's Income ace is backing
by Danielle Levy on Oct 31, 2013 at 09:45
The Citywire AAA-rated manager (pictured) says that consumer cyclicals have benefited from the first leg of the market rally, but it could now be time to look at the stocks that can benefit from the next stage of the recovery.
This has involved selling out of housebuilders, where Hudson has had exposure for the past two years, in favour of industrials such as Kier Group. Hudson previously held Taylor Wimpey and Crest Nicholson.
‘A lot of these consumer cyclical stocks have rerated, so it is an area we are beginning to reduce exposure to, having had a big weighting in this area. We sold our housebuilder exposure, although we still like some consumer cyclicals, like DS Smith,’ he said.
Hudson said he had been attracted to Kier because the company offers a way to gain access to a recovery in the commercial property market, which has lagged residential.
‘We are just beginning to see signs that things are getting better. Also they have taken over one of their main competitors and lots of synergies can come out from that,’ he said. ‘The market is beginning to bottom.’
He added media stocks could stand to benefit from the next stage of the UK recovery.
‘A lot of dividend growth and yield is set to come out of the media sector. It has traditionally been rated as a growth area. On a long-term perspective it is definitely showing much better capital discipline, valuations are attractive and the prospects for growth are exciting.’
Hudson holds Reed Elsevier, a top 10 holding, alongside BSkyB in this sector.
‘We like BSkyB, it is an interesting asset. It has clearly got some exposure to the consumer but at the same time it is a more defensive asset as it has got subscriptions. I can see revenues flowing in, dividend growth and a nice yield and it is not as operationally geared as a retailer,’ he said.
Over the past three years, the Cazenove UK Equity Income fund has posted a 61% return, far outpacing a 38.5% rise by the FTSE 350 Higher Yield index, according to Lipper.
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- Taylor Wimpey PLC (TW.L)
- Kier Group PLC (KIE.L)
- Crest Nicholson Holdings PLC (CRST.L)
- Reed Elsevier PLC (REL.L)
- DS Smith PLC (SMDS.L)