Cazenove’s Steve Cordell is shorting commodities in the UK Absolute Target fund as he reckons their price signals are “too strong to ignore”.
Cordell, who manages the £242m fund with Julie Dean, says commodities lagged the market last month month on the back of improving US data. He has cut the commodities exposure by 6 per cent, mainly in mining, meaning the fund is now 2.3 per cent net long oil and gas producers and 2.5 per cent net short mining.
“We decided to cut our long commodity stance and reverted to a negative stance as the price signal from oil, copper and even now gold was too strong to ignore,” Cordell says.
“The Bank of England has also decided to put the purchase of gilts on hold as some members of the Bank maybe feel it has reached the limit of its effectiveness. It follows a return to growth for the UK economy in the third quarter, which was boosted by the Olympics, and so at least has a valid excuse for the pause.”
However Cordell is not optimistic in his outlook for the UK.
“The momentum in Europe has deteriorated and so it is debatable whether the UK economy can continue to expand,” he says. “We are more reliant on the US than ever before to drag us back into growth.”
Cordell has also reduced the fund’s exposure to financials from 10 per cent to 4 per cent long in light of the incoming rules separating banking services from investment bank activity. He has sold Credit Agricole, Barclays and Lloyds, also taking some profit in real estate.
“We brought back financials to 4 per cent long as we see banks being more vulnerable to profit-taking now legislation is definitely going to curb investment banks on both sides of the Atlantic,” he says.
The fund is currently 1.8 per cent net short, but Cordell is poised to increase this by adding to industrials “if the data continues to be supportive”. His favoured stocks are Melrose, Cookson, DS Smith and Spectris.
The fund is currently 3 per cent net long industrials.