FUND VIEW-Octopus manager favours defensives over cyclicals

By Laurence Fletcher

Valuations of cyclical stocks have risen too far as a result of the recent market rebound, according to Octopus Investments fund manager David Crawford, who has been switching into more defensive stocks.

Crawford, whose 105 million pound ($169.1 million) Octopus Absolute Return fund both buys stocks and sells them short, said equities overall look good value. "I just think cyclicals have run away, they've got ahead of themselves," he said in an interview on Friday. Britain's blue chip FTSE 100, which dropped by nearly one-third last year, has rebounded 20 percent from its March low on hopes government stimulus will help avert a prolonged recession.

Year-to-date, cyclical sectors have performed well after a tough 2008. The FTSE All Share Mining index is up 23 percent, while the FTSE All Share Industrial Engineering index is up 24 percent.

Crawford said he had recently sold some mining stocks and other cyclicals and moved into defensives such as pharmaceuticals like GlaxoSmithKline because he thinks they look better value. He has some concerns about the pace of an economic recovery, but nevertheless believes equities offer good value on a range of measures such as cashflows, price/earnings and price to relative value.

His long-short fund is up 71.1 percent since launching last March, compared with a 1.5 percent gain among funds in the absolute return sector and a 24.6 percent drop in the FTSE All Share index, according to data from Thomson Reuters fund research company Lipper. He has been approximately 60 percent net long for the past four months. "I'd felt the market looked pretty good value, it looked pretty oversold," he said. "I'm not convinced we're going to get the recovery we're hoping for, it could be quite disappointing … (But) the market is already pricing in quite a bit of the disappointment. My long book looks pretty good value."