News - Uk
Dan Nickols, Old Mutual Asset Managers’ (OMAM) top performing small-cap manager, has reshaped his £468m UK Select Smaller Companies fund to gain greater exposure high quality cyclical firms.
Nickols (pictured) has implemented a 10% position to a basket of cyclical value stocks, in anticipation share prices are set to rise sharply. His holdings in the sector include Volex, TT Group and AZ Electronic Materials.
When risk aversion strikes in falling markets, a number of high quality cyclical businesses’ share prices hold up firmly, as investors sell out of the cheaper component of the Hoare Govett Smaller Companies index, he added.
“I increased exposure to the tactical portion of the portfolio at the start of the year, boosting exposure to cyclical stocks, to shield against an improvement in risk appetite and a subsequent bounce in the market, which we profited from in the first quarter,” said Nickols.
“I am sticking with this position after the latest bout of risk aversion struck equity markets, as I am confident markets will bounce back as on the whole GDP growth is expanding as opposed to derailing.”
Nickols added although the FTSE 100 dipped to a year low last week amid fears Greece is set to exit the euro, the strong projected earnings growth in the mid- and small-cap arena could lead the Hoare Govett index to improve on its 16% return year to date.
He argued small caps are modestly priced compared to large caps, which are trading on lower priced earnings valuations as investors have been buying heavily into defensive names to preserve capital growth.
“The Hoare Govett Smaller Companies index is currently trading on a slight premium to the FTSE All Share, but its 12-month forward P/E ratio is more than double, at 12 times while the All Share is five times,” said Nickols.
“This is because the pharmaceutical and tobacco large-cap sectors are now relatively mature after a lot of people bought into these areas last year meaning, as a whole, small caps are more attractively valued.”
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