Manager focus: David Docherty

David Docherty has made few changes to the Cazenove UK Growth and Income fund since stepping up to the co-manager role. However, he has exposed the portfolio to real estate for the first time in over a year.

In January, Fund Strategy reported that Tim Russell would be stepping down from day-to-day duties as manager of the UK Growth and Income fund to focus on the UK Absolute Target return vehicle, launched last year.

Docherty has worked as assistant manager on the fund since January last year, and follows the business cycle investment philosophy adopted by Russell and other managers at the group.

Cazenove says that business cycle investors do not favour either value or growth stocks. Analysis of the economy leads the managers to conclude which styles will provide returns at that point in the cycle.

The largest business cycle overweight position on the fund is value defensives, including food and utility stocks. The second largest overweight is growth defensives.

“We are making sure we do not become complacent about defensives, but have added to a few opportunities,” he says.

Docherty has added a holding in Associated British Foods, which he describes as “a stable business with a strong position in Primark, which has good defensive earnings”.

More recently, he has increased exposure to pharmaceuticals. He says that they face fewer headwinds, despite being hit by concerns that the new American administration will aim to control drug pricing.

The largest underweight is commodity cyclicals, and the fund also remains underweight financials.

“I recently sold the Royal Bank of Scotland before the sell-off in January, but we have tried to look for survivors in the sector, as we do not want a blanket ban,” Dpcherty says.

He bought British Land at the time of its equity issuance, and says that now its finances have been strengthened, the company has a good quality asset base and tenants.

“We held no property last year and it was a good thing to have avoided. The shares are trading on massive discounts and this is a toe in the water of the sector.”

He has also sold out of Smith & Nephew, and says that although he believes it is defensive, he felt that the valuation was full, with no scope to make more money.

Docherty expects 2009 to be a choppy year for markets, with a slow recovery beginning in the second half of the year as corporates and consumers try to pay off debt.

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