L1 Capital, a Melbourne-based hedge fund run by Raphael Lamm and Mark Landau, is buying cyclical stocks rather than defensive stocks as it pares back its long-exposure to equity markets, according to a report by The Financial Review.

The firm believes that defensive stocks are too expensive as they have already priced in future interest rate cuts. 

The report cites Landau, co-founder of the 16-year-old hedge fund, as having told investors that ASX-listed companies that derived their revenues offshore are particularly vulnerable, given their elevated valuations and the weak Australian dollar.

“Cyclicals are the opportunity in the market and defensive [stocks] are crowded and expensive,” Landau told an investor webinar.

L1 Capital’s AUD1.7 billion ASX-listed fund LSF has delivered a 12.2 per cent per annum return while the underlying long-short strategy has returned more than 20 per cent per annum since 2014.