The manager, who took over City Financial’s multi-manager range in January as revealed in Investment Adviser, said the valuations of companies such as utilities providers and pharmaceuticals companies - usually deemed defensive - had performed similarly to technology companies in the build up to the tech bubble.
As a result he has shifted the focus of some of his funds from income strategies to dividend-growth strategies, which meant he was investing in cheaper areas of the market.
“Defensives have travelled a very similar path to companies in the tech boom and we might be reaching a tipping point,” Mr Harris said.
“On the other hand, if the Federal Reserve and the European Central Bank keep driving yields down, then people could stay with these yield plays for longer, but the warning flags are starting to go up.”
Elsewhere, the manager is backing small and mid-cap funds in Europe, the UK and the US in a bid to benefit from an equity market rotation into more cyclical areas.
In recent weeks he has bought into Miton Asset Management’s newly launched US Opportunities fund and Franklin Templeton’s UK Smaller Companies fund.
Mr Harris said: “It’s now getting to the point where economic data is starting to look better. The overall trend is one of improvement and I think there may be one or two growth surprises as we move from the second quarter to the third quarter.”
The Miton US Opportunities fund was launched in March and is run by Nick Ford and Hugh Grieves. Mr Harris said the fund had been “under the radar” for many investors, even though Mr Ford had previously established a strong track record when he ran US equity funds at Scottish Widows Investment Partnership.
Meanwhile, Mr Harris’s other target, Franklin Templeton, has undergone a revamp. Richard Bullas and Paul Spencer overhauled the £21m UK Smaller Companies fund last year following the departure of the fund’s previous manager Stuart Sharp.
Mr Harris has also bought exchange-traded funds tracking European and US indices, alongside a specialist product tracking a basket of European banks, which he said helped the funds’ diversification as well as keeping its overall costs down.
The City Financial Diversified fund, Mr Harris’s largest product at £47.6m, has gained 6.2 per cent since he took charge at the start of the year, according to FE Analytics. This compares with a 5.5 per cent average gain from its peer group, the IMA Mixed Investment 0-35% Shares sector.
City Financial is currently reviewing its fund range following its acquisition of OPM Fund Management in April.