It is time to reallocate back to cyclicals as only a bad recession in the US threatens a strong global dividend trend, said DWS' Thomas Schüssler.

The manager, who oversees €8 billion in the DWS Top Dividende fund, currently has high cash levels and is ready to invest on the first sign of trouble.

'We are holding 9% cash on a buying opportunity for when the market goes down over the summer and where we would add some cyclicals,' Schüssler told Citywire Global.

'I do think that dividends are going to grow from here, especially in those companies that are seen as safe and with strong earnings.'

'I would say that in this scenario, it would only take a bad recession in the US, which would automatically see a bad recession in Europe, to distort dividend payments.'

And:

'Our biggest risk to the current exposure of the fund is that the stock market goes up on QE3 or on positive political developments in the Euro area. This would see some of the more over-owned stocks in our fund underperform.'

David Fuller's view A number of investors will understandably remain concerned about a sell-off in August because that is what happened last year when Greece's ongoing crisis was a focal point of attention. After all, most of Europe's politicians are now on holiday and a plausible solution to the conundrum posed by the Eurozone's debt problems and lack of GDP growth remains as elusive as ever.

I assume that market seasonal risks were a factor behind astute ECB president Mario Draghi's bold statement of reassurance last Thursday (see 'financial hyena's' and 'the eurozone's wounded beasts', on 26th July).


Interestingly, Thomas Schüssler of DWS has been accumulating cash, mainly through inflows into his Top Dividende fund, in the event of another buying opportunity over the next few weeks. The first of two risks to this strategy, cited by Schüssler in the article above, is the possibility of "a bad recession in the US" which affects Europe. However, he cites a further stock market rally as the "biggest risk" to his current strategy of holding currently in-form defensive stocks while looking for a further buying opportunity in high-yielding cyclicals.

Similarly, Fullermoney has favoured high-yielding multinational Autonomies, some of which are also Dividend Aristocrats. However, to protect against over exuberance in some of these shares and / or a subsequent loss of form beyond mean reversion back to rising 200-day MAs, one really does have to monitor the weekly charts, in my view.

In other words, one really should consider taking some profits when favoured positions clearly become overextended relative to their MAs, particularly within medium-term uptrends which may last two years or occasionally longer. Similarly, we continue to regard pullbacks to rising MAs as potential buying opportunities, provided renewed support is evident near the MAs. Yum Brands is a good example of these two points.

However, persistent outperformance is inevitably followed by a potentially lengthy period of underperformance, signalled by shares which break beneath their rising MAs sufficiently for those trend means to eventually turn downwards. Burberry Group is a good example, being a global Autonomy which became very overextended relative to its MA exactly one year ago. Its subsequent choppy ranging indicates a struggle between supply and demand, and Burberry has been unable to reassert its uptrend to date. Meanwhile the MA has turned downwards.

(See also Eoin's section on leading food retailers below.)