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.
“Babcock, Serco, Reed, Diageo: these are the sorts of business we want to be owning more of at this stage in the cycle,” she said.
The manager acknowledged the sector had seen margins expand during the current cycle, but said her picks had valuations below the levels seen heading in to the 2000-2003 bear market and room for further margin expansion.
The Sanditon UK fund has shed 7.4 per cent since launch compared with a 5.4 per cent loss for the All-Share index, according to FE Analytics. Ms Dean attributed this lag to the portfolio having a low beta during a strong July for stocks, rather than being unduly hurt in the subsequent sell-off.
Why Julie Dean quit Schroders
“It’s important to be happy in your work and at a place which best suits you”, Julia Dean said of her decision to leave Schroders in September 2014, 14 months after the firm completed the acquisition of her former employer Cazenove.
“This is a stressful business, there is no hiding place – that is one of the things I like about fund management.”
“But it does mean it’s important to work with like-minded people who complement you.”
While former HSBC Asset Management and Cazenove colleagues Tim Russell and Chris Rice fit into the latter category, Ms Dean also pointed to two other factors behind her decision.
She said that working in a smaller firm played to her strengths, adding: “I have never been a big user of analyst resource, the [business cycle] process doesn’t operate that way. It became clear I just like picking stocks.”
The final piece of the puzzle was the opportunity to become a “major shareholder” in Sanditon. This alignment, combined with her personal investments into her own fund, represent “the ultimate expression of fund management”, according to the manager.
