manager of cazenove uk growth & income fund tim russell moves out of value defensives
Manager of the Cazenove UK Growth & Income Fund Tim Russell has made a tactical switch from value defensives into industrial cyclicals in recent months.
Speaking at the group's investment conference last week, he admitted this move could prove to be wrong if a slowdown occurs this quarter, however.
Russell, head of pan European equities at Cazenove, said UK industrial performance has been anaemic in the last year, with only five out of the last 12 months seeing positive industrial output. However, he said the strong global industrial cycle is positive for the UK and has subsequently increased industrial cyclical exposure in the portfolio.
Cazenove forecasts free cashflow yields of 7% in 2005 and 7.5% in 2006 for FTSE 100 industrials, and 6.9% in 2005 and 2006 for FTSE 250 industrials.
On a bid-to-bid basis over 12 months to 4 October, the £594m fund returned 11.6% against an UK All Companies sector average of 13.5%, ranking it 212 out of 296. The breakdown of the fund is 77.5% large caps, 17.7% mid caps, 2.6% small caps and 2.2% cash.
In the last six months, Russell said financials outperformed in light of an easing of UK rate expectations and corporate activity but he remains keen on banks despite their recent run. He is overweight financials by 1.6%.
Russell added that over the same period, commodity cyclicals were driven up by strength in spot prices but commodities are now becoming dangerous due to their volatility. He is underweight commodity cyclicals by 2.4%.
In respect to UK market valuation, he predicts P/Es of 14.3 times and yields of 3.8% in 2005, and P/Es of 13 times and yields of 4% in 2006 .
Additionally, Russell said the UK housing market is slowing and house prices will fall but not crash. He thinks consumer spending is slowing and price falls are to be expected, although the link between housing and consumption is unclear.
Also speaking at the conference was Neil Pegrum, who left Insight Investment after just 18 months to set up the Cazenove UK Dynamic fund, a carbon copy of his previous Insight vehicle.
FTSE 100 stocks will account for 45% of total fund assets but he will also invest in companies with market caps as low as £10m in this best ideas portfolio, which will have very few risk controls.
Pegrum emphasised that there will be no passive holdings in his new portfolio but, at the same time, it will not be a trading fund. He said portfolio turnover will be driven by achieving valuation targets, although he does not have a set holding term for stocks and is sceptical of managers who say they are long-term investors or hold companies over two to three years.