Schroders’ new hire Alex Breese is selling companies that have done well in the “early stage” of the UK’s economic recovery in favour of slightly more defensive positions as the stockmarket continues to move higher.
Mr Breese – who joined from Neptune last year to run the Schroder UK Equity fund following the departures of Errol Francis and Ed Meier – has cut the holdings of his portfolio from roughly 60 to 80 when he took over to between 40 and 60 stocks now.
This has involved selling down stocks that have benefited strongly from the initial stage of the UK’s economic recovery.
“We’ve sold down the winners that have done very well and where the valuations are very high, for example [cash and carry firm] Booker,” Mr Breese said.
“That stock had a significant re-rating and I just feel that the risk-reward balance is no longer in our favour.”
Since the beginning of April last year Booker’s share price has gained nearly 50 per cent to a peak of 176.5p per share on March 5 2014.
Since then the stock has begun to slide, falling 15 per cent to April 8.
The manager has also sold down British Airways’ parent company International Airlines Group, which has gained more than 70 per cent in the past 12 months, as there was “less downside protection” in the position.
Mr Breese said the Schroder UK Equity fund now had a “more balanced” feel, reflecting valuations in the market.
“Domestic cyclicals have done very, very well,” the manager added.
“Two or three years ago they were among the most hated parts of the market, and it was very easy to paint a negative picture of the UK economy.
“There are still opportunities for some domestic cyclical companies, but they tend to be in the later-cycle area now.”
He cited Headlam, a specialist in carpets and floor coverings, as a company positioned to benefit from the “later stage” of the housing market recovery.
Mr Breese has also added to energy stocks because of their current “very low” valuations.
He said: “A lot of capital was spent in anticipation of higher oil prices. Now senior management are shifting the focus away from growth and towards returns.”
Since Mr Breese assumed control of the fund in July 2013, the UK Equity fund has gained 7.1 per cent, ahead of the FTSE All-Share index’s 4.5 per cent return, according to FE Analytics.
His previous fund, Neptune UK Special Situations, gained 61 per cent in the five years until his departure at the beginning of April 2013, ranking in the top quartile of the IMA UK All Companies sector, and almost doubling the return from the FTSE All-Share index.
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