Beta is a measure of a stock’s volatility in relation to the market so that high-beta stocks have high volatility but potentially higher returns. Cyclical stocks are sensitive to economic conditions. They will perform well when the economy is coming out of recession and suffer when growth slows.
Head of equity investment David Jane had been trying to position the fund in anticipation of a recovery but has returned to a defensive strategy due to uncertainty about infl- ation and whether the recent rally in equities is a market recovery or a bear market rally.
Jane is committed to maintaining equity exposure but wonders if the rally has been driven by market sentiment as investors have become less risk averse and whether there is scope for further share price rises. He expects a sustained recovery in equities to come from Asia but the possible re-emergence of inflation will be challenging.