Rathbone chief investment officer Julian Chillingworth has rotated out of UK consumer durables and utilities into cyclical mining stocks in his £50m Rathbone Blue Chip Income and Growth fund.
Chillingworth explains that this recent “re-orientating” in the portfolio comes following indications that the economic growth could continue to improve.
He says: “We did have quite a large consumer durables and utilities weighting but we have been bringing this down and investing in more cyclical stocks, as we believe that if the US economy and global growth continues to pick up then these more cyclical companies will do better.”
Chillingworth has consequently reduced his weighting in the consumer goods sector to 12.3 per cent at the end of May 2013, compared to 12.73 per cent for April. He also brought the fund’s utilities weighting down to 13.5 per cent last month, from 14.5 per cent at the end of April.
Consumer durables stocks including Unilever and Diageo were sold as part of the shift, while mining companies Rio Tinto and BHP were bought.
He also acknowledges and agrees with recent concerns that traditionally defensive large cap stocks, such as consumer goods, were beginning to look expensive in terms of their price/earnings.
Indeed, Chillingworth goes onto argue that he was further encouraged to re-orientate the portfolio based on the fact that the p/e of cyclical stocks looked attractive when compared to that of consumer defensive stocks.
He says: “We would agree with some of the commentators making the point that consumer defensives are probably looking a bit expensive.
“That is why we have effectively been selling consumer durables like Diageo which is on a p/e of around 18x, and buying mining companies like Rio Tinto on a p/e of approximately 9x.”