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Current market conditions appear positive, with companies looking more financially robust than ever before, but the sector's cyclical nature remains and we believe that there could be the first signs of a possible asset bubble looming. We believe the key is, as is so often the case in investment, to look at the cash. Who is generating it and what is it being used for? Thus it is recommended that, with some of the multiples looking unsustainably high, it is time to take some profits.
Our recommendation is to stick with the companies that have proved adept in dealing with the cycle in the past and where the cash position provides a degree of comfort. If there are plans to return cash to shareholders, this should be seen as positive.
Divisional Director - Head of Mid Cap Equity Research