Bill Mott is increasing exposure to mid caps on the PSigma Income fund. This is because he perceives the risk that is being priced into these stocks is extensive compared with the potential upside.
The manager has already added more sterling-sensitive mid caps to the fund, and plans to continue to do so. However, the bulk of the portfolio will remain in defensive sectors such as food, pharmaceuticals, retail, telecoms, tobacco and utilities.
He says he is accumulating mid caps as the risk-reward balance favours a more aggressive stance. For example, he says many mid caps are priced as if going bust is a possibility. If two of out 10 companies were to become worthless, the upside from the others would more than compensate.
Elsewhere in the portfolio he is overweight engineering and media at a large and mid-cap level as he is keen on gaining exposure to international economically-sensitive stocks.
He foresees a protracted period of global recession and deflation where investors should only own super-defensive equities if possible. But he says the chances of an economic recovery are greater as central governments bolster their economies.