Investment view: Invesco's Taylor takes defensive stance

Jeff Taylor said he had invested in diversified large caps with visible earnings at a time when earnings visibility was poor.

In particular, he said he had taken profits in cyclicals in favour of defensives.

"After the sharp rally, we need to have sector rotation," he said.

Taylor moved more heavily into cyclicals during the first quarter on cheap valuations.

In the consumer space, he said, Europe was less volatile than in the UK as household debt was 60-65 per cent of GDP compared with 100 per cent.

"Although the bulk of my portfolio was defensive, a number of cyclicals had become ridiculously cheap, even under an Armageddon scenario. However, I didn't want to chase every bit of yield I could get," he said.

But Taylor said despite managers' optimism for the future, companies had given him gloomy assessments of the present.

He said this discrepancy in sentiment mirrored 2002, when economic optimism grew towards the middle of the year, but fell back towards the end of it.

He added cyclicals were not compensating investors for the greater volatility of their dividends by generating a higher dividend yield.

Defensives therefore looked more attractive from an income perspective, he said.

As a result, the manager said he had picked his stocks carefully.

To play infrastructure spending, he said, he had bought companies which would experience continual demand as a result, such as asphalt manufacturer CRH, and not firms which made one-off equipment sales.

To take an example, Chinese infrastructure developers "can use their old equipment, and local manufacturers have stolen a lot of market share", Taylor said.

According to Taylor, investors should also be wary of generalising about regions such as the peripheral eurozone nations, or Piigs.

He said a fall-off in German exports had driven the country's GDP down much more more rapidly than in Spain, for instance.