The cyclical versus defensive debate

Investment managers have rarely been more divided over whether to jump on board the cyclical rally or stick with defensives.

The case for cyclicals: Don’t underestimate economic performance

Investors have piled money into cyclical stocks amid growing optimism over the economy, which has led the likes of Fidelity’s Anthony Bolton to call return of the bull market.

Bolton’s call has been dismissed in some quarters, which label the surge in cyclicals as simply a bear market rally.

However, Richard Buxton (above), manager of the Schroder UK Alpha Plus fund, does not share the pessimists’ view and highlights a number of factors which suggest the rally could persist for some time.

He said: ‘We have not been all that surprised by the scale and nature of this rally given that, by early March, equity valuations had been looking far more reminiscent of a depression and complete financial sector meltdown than they were of the painful, drawn-out recession that is instead likely to occur.’

Buxton also finds it reassuring that investors want the market to roll back a little so they can buy a bit more.

He said: ‘We believe this is exactly what is now happening with regard to cyclical stocks, and are confident investors will, therefore, be more likely to use any additional periods of weakness to trickle money in, rather than sit on the sidelines in fear of another significant lurch down.’

Henderson New Star fund of funds manager Craig Heron also sits in the cyclical camp.