Sadan loses interest in UK cyclicals and sells

Gartmore UK Growth co-manager Sacha Sadan believes cyclical stocks will lose their appeal this year and is selling some of his best performers.

Sadan has been taking profits on stocks such as Corus and Marconi, which help account for a cyclical position that was first adopted in the middle of last year. The money is being used to buy stocks such as Vodafone.

He says: “The theme of cyclical outperformance will not last throughout the year – I expect we will have a couple more months of this trend at most.”

This view is based on experience, which, says Sadan, tells him that cyclical stocks do not outperform for long. After a period of good performance in such stocks, investors seek longer-term earnings growth. Vodafone, he argues, will benefit from new third generation technology: “The company has a strong position in a growing industry.”

Despite this shift, Sadan, who runs the fund with Gartmore’s head of UK equities Jon Thornton and Eric Moore, is still maintaining a cyclical bias. The fund is overweight its FTSE All-Share benchmark index general industrials and media and entertainment. Holdings in engineering and machinery companies drive his general industrials position; names he likes include Kidde and Tomkins.

He is attracted to companies that have an element of self-help, pointing to steel manufacturer Corus: “Althoughsteel is a commodity and demand is driven by economic growth, Corus has the potential for huge cost savings.”

IT hardware companies are benefiting from increased capital spending, says Sadan, which is the reason he likes Marconi: “It has blue-chip clients and they are starting to reach into their pockets again.”

In the 12 months to January 21, the fund has beaten the average performance of its UK All Companies IMA peer group. According to TrustNet, the sector rose by an average of 28.6% compared with a 29.2% rise in the fund.