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View the article online at http://citywire.co.uk/wealth-manager/article/a738185

Why recent IPO flurry worries Julie Dean

by Danielle Levy on Mar 07, 2014 at 07:00

Why recent IPO flurry worries Julie Dean

Cazenove UK Opportunities  manager Julie Dean believes the time is ripe to move out of cyclicals into more defensive stocks. 

The Citywire AAA-rated fund manager cited the recent flurry of IPO activity as one potential warning sign of froth in the UK market. She highlights the recent IPO of AO, online white goods retailer, as one such example, having floated at a high valuation of around eight times sales and 150 times earnings. 

‘Despite that very high initial valuation, the shares traded at a 40% premium. It shows you the money to be put to work in the market and appetite for equity,’ Dean (pictured) said at a conference. 

With this in mind, she noted: ‘As we tilt our portfolio structurally, we are likely to take handsome profits on cyclical companies and will look to re-invest in businesses with more stable earnings where valuations look relatively more attractive,’  

Nonetheless, she still takes the view that equities are in a sweet spot if investors take a long-term view, particularly as inflation remains relatively low. Selectivity will prove key now though, she said. 

Dean describes the statistic that more than 80% of stocks in the FTSE 350 went up in 2013 as an ‘astonishing directional move'. Looking ahead, she expects to see a reversion to mean in terms of equity price performance. 

Much will depend on whether genuine earnings growth now comes through to support valuations, she commented: ‘The good news and this is genuinely important, is that unlike the economic revival that we tentatively started to see in 2010, recovery is now supported by a pick-up in fundamentals.’ 

She is particularly positive about signs of businesses started to invest in capex.

In the three years to 6 March Dean returned 75.6% on the UK Opportunities versus a 30.4% rise in the benchmark.

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