London-based John Stopford co-manages the $1.4bn Investec Global Multi-Asset Income Fund, which has around 30% of its assets in global equities, according to the fund factsheet.
“In terms of equity sectors, we are probably slightly over 50% cyclical sectors versus defensive,” Stopford said at a recent media briefing in Hong Kong.
Schneider Electric, Novartis and DBS are among the top equity holdings, but each account for only 0.8% of the portfolio.
He said he has reduced exposure to defensive stocks, such as staple names, as they have become too expensive, but did not provide details.
While Stopford prefers cyclical companies, he noted that he does not like technology.
“Within cyclical sectors, I would say we are not naturally big investors in tech because we’re looking for businesses that generate excess cash in a dependable way, and we are looking for safer companies,” he said.
Instead, he likes some industrial companies, especially those that are selling off non-core businesses to generate additional cash flows.
“We’re looking for businesses that generate excess cash and then pay that out primarily in dividends.”
Rising cost of defense
Other fund managers have started to rotate toward cyclicals, citing the rising cost of defensive stocks.
For example, Bill Maldonado, chief investment officer at HSBC Global Asset Management, believes that cyclical names provide more value.
“For us, the real value is in the more cyclical parts of the market. These value stocks are often very undervalued compared to defensive names.
“Because investors have been so concerned about the global economy, they tried to protect themselves by buying defensive names. The problem with that strategy over the last six-12 months is that those defensive sectors have become very, very expensive,” he said previously.
Not all investment professionals hold the same view, though. JP Morgan Asset Management and UBS Wealth Management, for example, have recommended clients take a more defensive stance.
In terms of country allocations, Investec’s Stopford prefers the US and Europe over Japan in developed markets.
“We don’t have a lot of exposure in Japan because Japan has been an underperforming market now for some time.”
Equity country allocation of the Investec Global Multi-Asset Income Fund
Investec Global Multi-Asset Income Fund vs its benchmark index and sector in Hong Kong