Cazenove UK Opportunities manager delivers consistent top-quartile performance
Since assuming control of Cazenove UK Opportunities in December 2002, Julie Dean has consistently delivered top-quartile performance.
Over five years to 29 January, the vehicle sits 28 out of 236 funds in the IMA UK All Companies sector, climbing 42.4% against an average increase of 24.1%, according to Morningstar.
On a three-year view the fund is up 3% compared to an average fall of 11.1%.
What is your investment style?
We adopt the business cycle approach. To make this manageable we divide the UK market into seven style groupings and allocate each stock in the market to one of those groups. At the cyclical and high beta end of the spectrum are commodities, consumer, and industrial cyclicals, where the variability of both a company’s profits and share price over a cycle is likely to be high. Moving from high beta down there are a few companies in the UK which we can identify as growth – not very many but a few – then financials, and right at the low beta end of the range we have growth or value defensives.
The approach is designed to avoid any style bias. And it combines a top-down macro view with an earnings-based stock selection process as well.
What have been the key drivers of performance over the last year?
We had quite a defensive structure to the portfolio because we were not believers of the V-shaped recovery, so stylistically we were overweight fairly defensive areas. But we did identify the market was wanting to believe in a recovery, and we clearly understood with the process of quantitative easing taking hold if you print money it will find a home. Throughout a lot of last year we generated the return from good stock selection in higher beta areas of the market.
In terms of the names we had good performance from Galiform, easyJet, Melrose and Elementis, In financials in particular, IT Group, 3i and Ashmore were all good contributors.
Although we had a defensive portfolio in terms of our weightings to growth and value, we had sufficient judicious asset turn in recovery elements of the market, where we felt confident about the likely earnings and rating potential to do a few of those trades. What was noticeable was as the year progressed those opportunities became less.
What happened towards the end of the year from the middle of Q4 was we began to see a greater broadening out of stock market performance. We started to see some of the more defensive companies doing a little bit better with some of the higher beta areas of the market doing less well.
We did not generate the performance by having a portfolio with a beta well in excess of one and lots of exposure to mining, for example.
What shifts have you made to holdings in recent months?
The core of the portfolio has remained fairly consistent in terms of our biggest holdings. GlaxoSmithKline, Galiform, Morrisons, Babcock and Melrose are all in our top 10 currently and they were all in there last year.
The changes have come from increasing the emphasis onto some of those names. Towards the end of last year we bought a lot more RSA Insurance Group and made it into a top 10 holding. We increased our holding in Serco and AstraZeneca. And we de-emphasised some of the more cyclical names, which had done well for us.
We started to reduce BG Group at the end of last year and sold it this year. We have recently reduced some of the financials, including Prudential which we have taken out, and we sold Vodafone during the third and fourth quarters.
The structure of the fund is quite concentrated. I have 48 stocks at the moment and I try and maintain a one-in, one-out approach. However, during last year the number of stocks in the portfolio began to expand slightly because I was looking more at the FTSE 250, and small-caps area of the market to find the ideas. We did not think the large caps potential was as great in terms of the amount of portfolio capital it takes up.
If I look at how the fund is structured at the moment the top 10 active positions relative to the FTSE All-Share Index add up to around 37.5%, which is slightly above that of the market but I want to make sure where we have a good idea we make it count. I try and avoid having underweight positions in very large stocks because it is a dilution of a money making opportunity elsewhere. Providing I think it is an appropriate risk to take, I try and keep the active money component in the fund quite high but remain flexible.
How would you describe your current positioning?
The fund is currently very overweight support services.
We have quite a high weighting in travel and leisure. Some of the valuations are quite low which is interesting – there are some almost growth stories in this sector – and we have some general financials. By contrast the fund is very underweight oil, banks, mining and mobile.
