Celtic tiger prepares to roar again

Gartmore\'s Irish Growth Trust has halved in value over the past year, in unison with Ireland\'s stockmarket. But Gervais Williams, its manager, says the country is positioned for recovery.

Ireland is set for an equity market rally as the economy has all the ingredients for a recovery after a year of recession, according to Gartmore’s Gervais Williams. The manager of the group’s Irish Growth Trust says a sustained rise of 30-40% is possible, giving him the opportunity to harvest capital and offset the losses of the past 18 months.

The share price of Williams’s fund halved in the year to the end of August 2008, falling 50.9%, according to Gartmore. Although a sharp drop, it compares with the Iseq index fall of 56.9% over the same period.

Williams says: “Since August it has got a lot worse and we have seen some very difficult months. I think we are moving to a position of recovery as the economic news is very averse and fund managers are positioned very conservatively, like we were 18 months ago.

“I am not sure we have seen a complete bottom but the new year is offering hope as Barack Obama plans to inject capital into banks and the economy. If we see a lot of the cash [that is] being held on the sidelines by fund managers make its way back into equities, there could be a decent market rally.”

Williams launched the Irish Growth Trust in 1995, a time when he says the Irish economy had a different demographic to other parts of Europe.

“We struggled to get the trust going as no one wanted to invest in Ireland then, but it turned out to be a great time to enter. Unemployment was very high 15 years ago and the only people who found jobs were high-quality individuals, so now the quality of management is also very high. Combine this with opportunities of low taxation and a keen young workforce with new skills: certain companies in Ireland are able to dominate the rest of Europe.” He gives as examples Ryanair and CRH, a cement and building materials supplier.

Despite excellent management teams, well thought-out strategies and the ability to deliver good returns, says Williams, some companies’ share prices have been unfairly affected by their association with the Irish economy.

Ireland, along with Spain, was pin-pointed by investors as a country that would suffer earlier and worse than some others in Europe. Dan Kemp, fund manager at Saltus Partners, a family firm, says this was because of the inflated property market reaching its peak in January 2007 and deflating ever since, which has affected the construction industry and consumer spending.

Kemp is not buying Irish equities but rates Williams highly as a manager. “If we ever did want exposure to the Irish economy we would definitely choose this fund,” he says. “Williams is an outstanding manager who has delivered exceptional returns in the boom years, and, more recently, when the Celtic tiger lost its bite, he has done well in preserving capital.”

Over the past 18 months Williams has been conservatively positioned, holding cash positions of up to 20%, an overweight of food manufacturers and avoiding financials.

“We have held lots of Irish food stocks, and not just basic suppliers but more sophisticated ones, which have protected on the way down.”

He did not completely avoid the financials blow-up and started to buy back into Allied Irish Bank in March, reducing this aggressively when he realised the call was too early.

The food manufacturers he invested in were some of the better performers in the 35-stock portfolio, as was Icon, a research company for large pharmaceutical firms.

More recently, Williams has poured cash back into the market in anticipation of a recovery, and his cash position is down to 3%. “I have invested in a financials company called Irish Life which, I think could recover strongly,” he says. “I do not think it will be one of the banks that will need a rights issue, so the share price will not be diluted.”

He has also invested in Smurfit Kappa, a containable goods and packaging firm. The share price has been weak but Williams says it should benefit from the dollar strengthening against the euro as most of its operations are international.

Williams has allocated some cash to CRH. Though one of Ireland’s largest companies, it has had a tough time this year. But half its operations are in America, so it will benefit from any improvement in infrastructure spending, Williams says.

James Burns, manager of the Smith & Williamson MM Global Growth Portfolio, a fund of investment trusts, says he may re-invest in the Irish Growth Trust when conditions normalise in the economy. He held the fund until August 2007 but sold after he felt it had a good run.

Like Kemp, Burns says that should he wish to gain Irish exposure, it would be through this vehicle.