Julie Dean has started a position in Rio Tinto and added to banking group Barclays in her £1.8bn Cazenove UK Opportunities fund as she maintains a pro-cyclical business cycle tilt.
Dean initiated a holding in the metals and mining corporation during May as its shares now trade at a 10 per cent yield premium to the market and she believes the risk-reward balance in the company is more in the fund’s favour.
“While we do not expect the iron ore price to recover in short order, the current price is below cost for a number of the less efficient Chinese mining companies and should therefore start to impinge on supply. This should offer the commodity price at least some support going forward,” the manager says.
“We feel that the current share price discounts little, if any, improvement in the iron ore market and it is perhaps worth noting that the shares have stopped falling with the iron ore price in May.”
Dean also sold out of the fund’s position in Lloyds last month after the improvements in the bank’s capital position meant it was trading at close to book value and at a premium to other domestic bank stocks.
The manager adds that Barclays, which she added in May, offers greater potential upside than Lloyds. Cazenove UK Opportunities’ allocation to Barclays was lifted from 4.23 per cent to 5.04 per cent, keeping it as the portfolio’s second largest holding.
“For the moment we maintain the fund’s pro-cyclical skew since we expect economic growth will improve from here and the paucity of inflationary pressures should enable equities to make further gains even if bond yields tick higher as stronger growth is discounted,” Dean concludes.
“If this reading of the cycle is correct we would expect growth and value defensive shares to de-rate as the relative value of their ‘safety’ falls.”