Cazenove’s Steve Cordell has sold most of the eurozone shorts in the UK Absolute Target fund and taken a long position in European industrials for the first time since the fund launched in July 2008.
The £146m fund is now 4% net long the industrial sector, its second largest sector weighting after media.
“The improvement in the eurozone surveys, including the southern European countries, was perhaps the biggest positive surprise in terms of impact on the market as sentiment is resolutely negative towards the continent,” Cordell says.
“This prompted us to remove most of our eurozone shorts during January, especially the industrials.”
Cordell says the recent performance of Swedish industrial stock SKF suggests cyclical stocks are gaining in favour.
“One of the most instructive shares this quarter was SKF. It missed Q4 by a good 10%, spoke of dull Q1 trends amid continued destocking, yet the shares ended the day flat and moved up the next day. Investors are clearly seeing a need to get more cyclical,” Cordell says.
“The business cycle is turning back up, and we are moving more pro-cyclical. The speed of the move up in some shares leaves us wary of chasing the market too far from here, but we suspect setbacks will be modest while many investors are still sceptical,” he adds.