Shares to buy, hold and sell: Matthew Hudson


Cazenove has an unusual approach to its fund management: business-focused, it aims to determine what stage of the business cycle the market is in and position its portfolio to best take advantage of that. For that reason funds such as Cazenove UK Equity Income will go from periods of low to high turnover, as holdings are re-jigged to reflect a shift in the cycle.

Manager Matthew Hudson is currently interested in late-stage cyclicals. He has been buying shares in Kier Group for the past couple of months: it's an industrially oriented business that is involved with regional contracting, facilities management and property development.

"Industrial property is a sector that has been under pressure for a while, because we had a boom in activity in 2008 but since then that has been declining," explains Hudson. Now, however, he believes some price stability is starting to come through.

Kier Group, he says, has a good order book and strong visibility on future revenue and profits, and has recently acquired a smaller competitor so will gain some additional upside from that. Currently the shares have a dividend yield of around 4% and Hudson expects high single-digit dividend growth to come.


Legal & General has been in the fund for "three or four years", and is a business that has performed very well in the UK, particularly in the annuity market, according to Hudson. "It has been able to grow with the markets it serves," he explains.

L&G is a large, mostly UK-oriented business, but Hudson says it is now looking to bring the advantages of its scale and skills to bigger markets by building up its international business. That should bring with it more profit, with the additional benefits of a fixed cost base.

Even within the domestic market it has been expanding, through the growth of its fund management business LGIM and its acquisition of investment platform Cofunds, he points out.

"We still like financials and we like L&G's great combination of high yield, dividend growth and quality business," says Hudson. However, the share is a "hold" for him at the moment, as although he is confident about the outlook for the business, he feels this is recognised by the market. Still, the shares have a decent dividend yield of 4.8%.

Because Hudson is running an income fund, dividend yield is obviously an important factor; but he explains that having high-yield stalwarts such as L&G in his top 10 holdings allows him to make different plays elsewhere in the portfolio; for example, giving him the freedom to consider low- or zero-dividend recovery shares that look interesting.


Another construction stock, but this time providing exposure to the residential market, this is a share falling into the "early stage cyclicals" sector that Hudson is currently looking to sell.

He originally bought shares in house- builder Taylor Wimpey in late 2010 and into early 2011, and the shares grew 84% in that initial 12-month period; but Hudson has recently been reducing his holding. "It has been the best-performing housebuilder in the UK – but if you look at the share price graph, the time to own it was over the past couple of years when the growth was exponential," says Hudson.

He explains that at that time the market "did not like" housebuilders, but with more confidence coming back the sector has had a big re-rating.

Taylor Wimpey has a dividend yield of around 1.5% but it was zero-yield when Hudson first bought into it. It's now trading on 14 times forward earnings and at 1.4 times book value, and he is wary that the market is pricing in a lot of the upside already. He adds: "We are moving away from these consumer cyclicals to more industrial cyclicals."

This feature was written for our sister publication Money Observer