Bill Mott has slashed the number of stocks in the PSigma Income fund from 120 to 70, as the manager gains conviction of where future growth lies.
Mott has blended defensive UK equities and stocks tapping into the growth of the global economy, with just 10% of the portfolio having earnings exclusivity in the UK.
PSigma Income's reduction in economically sensitive socks has seen mid cap exposure fall to 10%, from 24% a year ago. The portfolio has a 2% weighting to small caps.
A defensive Mott believes the current momentum-driven UK market rally has gone too far, too quickly.
"Many investors, lamenting that the ‘train has left the station' without them, are busy playing catch-up.
"Other hedge fund managers, realising that interest rates are going to stay low for a considerable period of time, are gearing up. When the cost of borrowing money is zero, there is every incentive to punt aggressively.
"The trouble with this philosophy, as in all bubble situations, is that continuing to buy over-valued assets now requires you to believe that, although the drivers of the market are not sustainable, you will be able to sell before the inflection point at the peak."
While the fund has increased allocations to utilities and food retailers, they have no general retailers or property exposure.
"Demand for physical property has clearly picked up, quoted property shares have raced ahead," co-manager Neil Cumming adds.
"They are now trading a quite a premium to last quoted NAV. People are very optimistic on where NAVs are headed over the next 12 months, perhaps too optimistic we believe."
