While it may be clear why this was the case – massive supply-side response to non-occurring Chinese ‘super cycle’ demand – the point has come now, Dean argues, at which prices indicate the risk/return from related equities start to look attractive.
“The risk/reward in oil stocks Tullow and Ophir is especially attractive. When you can buy oil more cheaply on the stock market, then usually it is better [as an oil company] to cut your capital expenditure and buy assets,” she says.
“The last time these companies were at the levels they are now in valuation terms was back in 1999. Then there was a lot of M&A, and it is our view that the BP/Royal Dutch Shell deal will not be the last corporate activity you will see in this area.”
While believing the transition from expansion to slowdown has occurred quickly, Dean points out that we are unlikely to see a global recession with oil prices so low – although recent months have seen a certain stability in commodity prices.
Lurking danger
While she believes a recession is unlikely, Dean notes a lurking danger. A slowing corporate profit cycle coinciding with potential interest rate rises could be quite “ugly”.
“Recessions happen. They are unplea
ant but they are important to get rid of bad investment decisions from the previous cycle,” she says.
“I think the reason there is so much manufacturing overcapacity right now is because the recession of 2008 and 2009 was just incredibly short. The recovery of Asian growth rapidly laid down a whole new layer of productive capacity, which has to be unwound.”
While launching during a tough time for UK equities – the fund has not made a stellar start in its first four months – Dean gives the impression of being relaxed about the future (with a further offshore mirror of the fund to launch on 16 November).
She has complete faith in the Business Cycle methodology and her own ability and, while part of a small team, Dean has no qualms about working without analyst support.
“It is my name on that portfolio, so it has to be my decision,” she says. “The reason we do not have an analyst model is we do not believe it is additive to the way we work around our Business Cycle approach.” She says her role is the “ultimate expression
of investment management, because not only am I continuing to invest alongside my clients in ownership of the funds, which I have always done, but it is also having capital invested in the business”.
“It is a great opportunity to come back to just fund management, not managing people, just managing money, which is what I have always wanted to do. I am purely focusing on what markets are doing, why they are behaving how they are and where the best return opportunities are going to come from.”
