No need to stay at number 1
Roxane McMeeken checks out the Gartmore attitude to stock selection and product rankings.
The Gartmore Capital Strategy Continental Europe fund is a core holding in two of the model portfolios of our experts on the Funds Focus panel. Gartmore is based in London and manages E68.5bn. Diversified across Western European equities, excluding the UK, the fund is a consistent outperformer with strong risk controls. Insinger de Beaufort in The Netherlands and Carr Sheppards Crosthwaite in the UK have each consistently placed a substantial portion of their equity allocation in the Gartmore fund. During the past year, Gartmore CSF Continental Europe, as the fund is known, has returned –34.61 compared with the sector average of –37.91, according to Standard & Poor’s (S&P). It looks similar over three years – returning –52.62 per cent against –55.32. Over five years the fund is more impressive, with 1.5 per cent, compared with the average of –24.63. Controlled fashion S&P ranks Gartmore’s product second in its sector over five and 10 years. However, for the past year the fund is ranked 20th. Roger Guy, the fund’s joint manager claims that this is not a problem: “In a strange way, that is actually what we are aiming for. We manage this fund in a controlled way and our aim is to be at the bottom of the top quartile on an annualised basis.” He explains, “If we were at the top we would have taken a big risk to get there. We try to be more controlled and as a result to be number one or two over the long term. The main thing we go for is consistency.” Risk is controlled by minimising the allocation to sectors, countries and stocks. A single share cannot represent more than one per cent of the portfolio. There is no predetermined geographical asset allocation, except that the fund does not invest in UK companies and no country or sector can represent more than 50 per cent of the fund. Mr Guy explains that in terms of investment approach, the portfolio splits into two halves. “One is made up of longer term core holdings, where we think we will see unexpected growth.” This half tends to be composed of blue chip companies selected on the basis of good management and sound growth earnings. The other half is more actively managed and invests in opportunities arising relatively suddenly, such as a company that has had a change of management. Team of 18 analysts Mr Guy has final responsibility for stock selection for the Gartmore Europe fund along with fellow fund manager Guillaume Rambourg. They are supported by seven other European fund managers, who assist in choosing the fund’s core stocks. A team of 18 analysts “feed in good ideas and visit our core companies fairly frequently,” explains Mr Guy. Currently, his favourite stocks are oil companies, such as TotalFinaElf and Royal Dutch Petroleum, where oil prices and improved capital deployment are boosting revenues. However, a holding in Grupo Dragados was recently reduced following strong performance. In addition, Mr Guy likes pharmaceuticals, such as Roche, and telecoms, such as Telecom Italia and Telefonica. He says that he is avoiding banks and insurance companies and to a lesser extent technology stocks. However, a stake in the Bank of Ireland was recently increased based on the belief that the firm’s franchise was not fully reflected in its share price. Mr Guy concludes that the Gartmore Capital Strategy Continental Europe fund should be “very much a core holding” for both institutional and individual investors, “with specialist funds around the edge”.
