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Hanbury shorts housebuilders on Odey Absolute Return

James Hanbury is shorting housebuilders on the Odey UK Absolute Return fund as he says valuations have become too optimistic and property prices still have further to fall.

He says that British house prices are categorically too high even after declines of about 20% in the last year and at a time when interest rates are 0.5%, they should be affordable.

At the current levels, prices are 4.5 times the average British salary, he adds, reflecting that many will find buying or remortgaging tough.

Private salaries are also falling, the UK tax outlook is the worst there is in Europe and, significantly, unemployment is climbing. We are seeing oil move back up and anyone who has a variable mortgage will be on a higher rate going forward and consumer debt is still extremely high, adds Hanbury.

The fund manager did not want to disclose which housebuilders he is shorting, but says this is a main theme on the short book. Another is contracts for difference (CFDs) in traditionally defensive stocks on high valuations and stocks of a very cyclical nature he says have too much hope priced in.

Some of the consumer cyclicals in recruitment or property services are pricing in a very quick recovery and the risk is the downturn will be a bit more prolonged than the
market price suggests.

The fund was launched on May 12 and already the 26m raised is fully invested. It is the first British retail offering from the group and Hanbury is supported by Crispin Odey, the founder of Odey Asset Management.

On the long side, Hanbury uses his contrarian value approach to pick names he thinks will survive the recession.

I want companies that are still alive and kicking at the end, however deep the recession is.

They are market leaders, have high barriers to entry and will benefit from capacity coming out of their sectors.

Travis Perkins and Sports Direct are among the largest holdings on the fund, and Hanbury also likes JD Wetherspoon and Barclays.

Hanbury says the former three are plays on the consumer trading down and are outperforming in their sectors in terms of like-for-like sales.


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