Threadneedle’s Weldon rotates into defensives

Threadneedle’s Cormac Weldon has rotated out of cyclical names in favour of defensives in his £1.2bn American Select fund, as companies struggle against a muted outlook for the US economy.

Weldon has slashed his exposure to US energy companies, banks and industrials by roughly 13% over the past six months over concerns a continued slump in the US equity market will damage prospects for cyclical names.

In turn, he has reallocated the cash to his defensive holdings, adding roughly 6% to selected information technology stocks, taking his holdings to 26%, and adding to consumer staples.

Weldon’s 13% weighting to financials also excludes US banks and focuses on other financial sectors, such as credit card companies including Capital One.

“We have been underweight banks for a long time, for obvious reasons. However, there is a price for everything,” said Weldon.

“The advantage of US banks over European banks is they recapitalised three years ago. However, if the market was to start to price in a recovery, I would buy back into them,” he added.

Weldon added a further round of US quantitative easing was not needed to boost equity markets, although it would have been “appreciated”.

“In the first round of QE, the market was discounting a deflationary scenario, which is obviously very negative. This time around things still are not great but the market is not pricing in the risk of another great recession like last time, rather a long period of low growth,” he said.

“However, if the markets discounted deflation again then that would prompt the Federal Reserve to implement another round of QE,” he added.

Weldon favours a few mega-cap names such as Apple, which constitutes 5% of the fund, but on the whole he prefers the small- and mid-cap space.

“Our view is it is easier to find value in the small and mid-cap space because it is not monopolised by a few major players. But there are a few large-cap names we like,” he added.

The recent passing of Apple CEO Steve Jobs has created concerns the loss of his innovative presence will damage the company’s value.

However, Weldon said the reality of Jobs’ absence from the firm has long been priced into the shares, although he did expect a short-term correction in the stock price.

“His passing away is obviously definitive, so we could expect some short-term weakness.

“But we will not know the real impact of the loss for a few years yet, as the next tranche of products are probably already designed and ready to go,” he added.

Last week, Apple reported full-year results showing net  profits for the year to 25 September were $25.9bn (£16.5bn), up 85% on the previous year.

However, the increase was not enough to satisfy Wall Street, with Apple shares falling nearly 5% in after-hours trading following the results announcement. 

Analysts were disappointed with the fourth quarter of the year, when no major new products were released.