Sanditon Asset Management’s Julie Dean is holding less than 20 per cent of her UK fund in mid-caps despite the ex-Schroders manager having become closely associated with the space in recent years.
Ms Dean, who joined Sanditon in April and whose fund launched on June 23, held 18.2 per cent in the mid-cap space as of September 30, compared with some 71.9 per cent in FTSE 100 stocks.
The move has been driven by both the manager’s “business cycle” process, which suggests the cycle is now entering a more mature phase, as well as the sharp run-up in mid-caps seen in recent years.
“There is less value now in the FTSE 250,” Ms Dean said of an index that has risen 79 per cent over the past five years compared with a 32 per cent rise in the FTSE 100.
“Most of our holdings have a defensive tilt. Where there are cyclicals, it will be us trying to find something which has lagged,” she added.
But she has taken exposure to some more cyclical mid-caps such as Ophir Energy, which the manager noted was “not correlated with the very powerful FTSE 250 move in this cycle”.
Ms Dean began buying a select number of energy stocks in June and July, a move she acknowledged was a “little early”. The manager said valuations for the likes of BHP Billiton and Tullow Oil were at levels not seen since the late 1990s.
Elsewhere, Ms Dean is still overweight some of the consumer cyclicals that formed a major part of her portfolio between the end of 2011 and 2013, but these are typically FTSE 100 stocks such as WPP, Dixons Carphone and Kingfisher.
One mid-cap cyclical which the manager has bought is pub operator Mitchells & Butlers, trading on just eight times earnings.
She said the stock offered the prospect of both multiples and earnings expansion, even though “ownership of UK cyclicals into a recovering economy is no longer a new idea”.
The position partly reflects the fact that, despite her cautious stance on the UK economy’s prospects, the manager sees UK disposable income growth getting “a little better”.
On a similarly upbeat note, Ms Dean believes deflationary pressures have been overplayed, a viewpoint that accounts not just for her commodity holdings but also the positions she has opened in supermarkets Sainsbury’s and Morrisons.
“I think the fundamentals are fully reflected in [their prices]. It comes down to how you think the economy develops from here. If you think there will be no food price inflation again, you’d never own them. But if it picks up in the next two years, there is a very good opportunity in these stocks.”
Other stocks the manager is backing to improve include asset managers Ashmore and Man Group, but her main overweight remains to stocks such as corporate services firms Babcock and Relx (formerly Reed Elsevier). She holds 24.2 per cent in this grouping, defined as “growth defensives” in the terminology of the business cycle process, compared with the FTSE All-Share’s 14.7 per cent weighting.