Bill Mott is once again going against consensus by reducing exposure to cyclicals in favour of defensives in the PSigma Income fund.
After backing domestically-sensitive stocks for much of last year, Mott is now taking profits after the recent rally. He is adding to companies he says will deliver superior growth in tough economic conditions.
He says his more cautious positioning is down to a belief that Britain will go through a phase of anaemic growth rather than a full-blown recovery.
Government borrowing in the UK and in many other countries has ballooned out of control, he says in a release today. In effect, this is taking growth from the future to reduce the depth of the recession today. Eventually this borrowing will have to be reduced in real or nominal terms and this will subdue growth in the future.
It is our belief that economic recovery will come through over the next year or so, but that any recovery will be anaemic and that the UK and the global economy will suffer several years of sub-normal growth. The UK is in a particularly difficult position given our budget deficit and therefore our growth will be particularly subdued. The future is therefore one of bracing, but not impossible, economic conditions.
Mott adds that it appears that investors are becoming carried away on the subject of the economys strength, given the recent rally. His fund has benefited from this in 2009, and his exposure to Travis Perkins has seen the performance more than treble, while Enterprise Inns rose from 30p in January to 178p. SIG, Greene King and Informa have also done well.
While the cyclicals have been soaring, many of the defensive stocks have lagged badly, reversing their previous outperformance. These classically defensive sectors and stocks have hardly participated in the rally. On valuation grounds, AstraZeneca, GlaxoSmithkline and the tobacco stocks look like good places to allocate some new cashflow at these levels.
Mott has completely sold out of the retailers Next and Kesa and taken profits in companies where he supported rights issues, such as Cookson and Inchcape, in favour of defensive growth positions in Serco, Babcock, VT Group, Rexam and Bunzl.
He also says that a return a lower number of stocks is likely, and he will revert to focusing on themes, instead of heavily trading the portfolio as he did in during the recent downturn.
Mott buys back into property