Simon Murphy has been upping financial and mining stocks on his Old Mutual UK Select Equity fund in recent weeks, maintaining a broadly cyclical bent.
This positioning for a positive market hurt performance in the recent correction, although Murphy remains bullish on prospects for the rest of the year.
He was among the managers adding to BP when the stock got as low as £3, taking the view that the discounted price was more than adequately reflecting the ultimate costs of the Gulf of Mexico spill.
“I still think it is a cheap, high-quality asset, although a lot of the initial recovery has already taken place,” he adds.
“Having taken money out of the mining sector in the spring, we have been gradually increasing exposure again”
“I would classify this stock as one of our undervalued quality plays. I look for assets that are demonstrably undervalued, either because the market is mispricing some sort of risk to the franchise, as in this case, or underestimates how strong and how long the growth in a particular business can continue.”
Elsewhere, Murphy has solid exposure to structural growth areas, such as the technology sector and some support service companies.
“We still have some industrial exposure in companies like GKN, the auto parts manufacturer, but have been cutting positions, primarily because companies have done so well,” he says. (article continues below)
“We have been gradually increasing our financials exposure, upping our weight in banks because the operating environment for them continues to be very favourable. Having taken money out of the mining sector in the spring, we have been gradually increasing exposure again as valuations have become increasingly attractive.”
Looking forward, Murphy sees sentiment as very fragile, with market participants generally bearish despite strong corporate data.
“My expectation is that having had a sharp initial rally in July, we may continue to make progress over the next few months,” he adds.
“The big macroeconomic worries people have around sovereign debt seem to be receding for now and hopefully that means we can focus on company fundamentals and the relative attractiveness of equities.”