Just days after the Brexit vote when share prices of housebuilders had plummeted, Brian Cullen, manager of SW Mitchell Capital’s UK fund, “added aggressively to what was already a decent position in the sector.”
The portfolio’s weighting toward the sector jumped from 9% pre-referendum to 18.4% as at 30 June 2016.
But from August onward, Cullen began to gradually sell down his exposure to the sector.
Aside from a 1.6% holding in McCarthy & Stone, a building company that specialises in retirement homes, Cullen has zero exposure to the sector, which once included sizeable holdings in Taylor Wimpey, Crest Nicholson, Berkeley Group Holdings and Redrow.
He sold out of the latter completely over the past couple of weeks.
“There is nothing we have seen that causes us great concern,” he explained, “demand appears pretty good and the firms themselves don’t see any clouds on horizon.”
However, “fair value is sitting between 10%-25% higher than current share price,” he said.
“Whereas you could see 100% upside to their value, now, it’s more like 20%,” said Cullen, which is why he has “taken the opportunity to raise a little bit of cash” to be able to “react to opportunities as they emerge.”
Cullen’s decision to pull away from the sector comes at a time when other high-profile indsutry names – such as Woodford – are stepping in.
Earlier this month, in what analysts called a typically “contrarian” move, Woodford shifted the focus of his Equity Income Fund toward cyclicals and domestically focused companies, which was also reflected in the holdings of his newer Income Focus fund.
