With an investment horizon of at least two to three years, Butcher predicts that inflation will be a key upcoming theme for markets, but also foresees a steadier future for Europe after turbulent years in the wake of the financial crisis and rise of populist political movements.
“If you do think inflation is coming back then that’s a better pricing environment for European corporates. We’re in a steadier state now for Europe, we’ve been through a lot of tough austerity post-crisis and I think we are starting to see a sustainable recovery coming through.
“Interest rates really ought to go up from here and earnings and valuations should recover. In that scenario you want to hold cyclicality and move away from the high growth areas that have been so successful over the past few years.”
Butcher’s current overweight positions are in banks, telecoms and insurers, while the “most controversial” overweight position is in the energy sector. She sees a shift in management style among the biggest energy companies and a move to steadily reduce capital expenditure rather than constantly chase profits.
Play it as it lays
Consumer staples and long-duration assets don’t feature in her allocation as they play no part in her strategy, which she simplifies to functioning in the same way a football manager might oversee their team.
“I’ve got my players on the pitch, the stuff that is working today, that is really driving the portfolio and leading performance. And it’s the banks doing that at the moment.
“Then you’ve got to think about what’s on the ‘subs bench’. You know it’s cheap and that it’s going to do well but you don’t know the timing. Energy would be one of them and telco would be in there as well.
“Then its finding the defence, where you are comfortable so that if there was a dislocation in the market, that will act as your bolster. For us, food retail comes into that space.
“The stuff you don’t want to own are the ones that are not fulfilling any of those roles, which is why the consumer staples don’t get there. They’re great business models but if you’re overpaying for them they become quite risky and don’t act defensively.”
