Fund Manager’s Diary

Off to Gransden Lodge airfield, 12 miles west of Cambridge, for some gliding. True to form, in my first and only flight of the day, I am winched straight into a rain cloud. After 10 minutes of fruitless searching for an illusive lift, it is back to earth and a tedious five hours in the clubhouse waiting for the rain to clear before giving up and going home.

Saturday Off to Gransden Lodge airfield, 12 miles west of Cambridge, for some gliding. True to form, in my first and only flight of the day, I am winched straight into a rain cloud. After 10 minutes of fruitless searching for an illusive lift, it is back to earth and a tedious five hours in the clubhouse waiting for the rain to clear before giving up and going home.

Sunday The shock news of the bailout of Fannie Mae and Freddie Mac is going to have a big impact on the Monday stockmarket.

Monday The market reacts positively to the bailout – I guess moral hazard is banished for the moment. However, the euphoria is short-lived as the London Stock Exchange computer systems fail first thing and do not come fully back to life until late afternoon. Oh dear, so much for London’s premier status.

I meet Davenham, an independent asset-based lender to small and medium-size businesses that is performing well. However, being reliant on wholesale funding is a drawback at the moment, constraining the business in the near term. Regardless, it is a company to watch closely should the money markets improve.

The oil price is still weakening – I am topping up my holding in Carnival, a passenger cruise line. This beneficiary of falling oil prices should be reasonably defensive, given that most of its customers are retired and so relatively unaffected by mortgages or rising unemployment in America. Operating in a duopoly with Royal Caribbean Cruises is helpful in ensuring a benign competitive environment.

Tuesday The afternoon is spent in a strategy meeting with my colleagues on the British equities team headed by Ashton Bradbury. Views from colleagues affirm my cautious outlook, mitigated by the ever-growing prospect that interest rate cuts might be sharper and could come sooner than expected.

Wednesday Mervyn King is unhappy about providing cheap funding to the clearing banks and mentions the possibility of a new tougher regime. Not good news for financials, needless to say. While it is true that the facility was not intended to be permanent, money markets are still not functioning properly, with the three-month Libor rate at 5.7%, way above the base lending rate of 5%.

Meeting with the management of Hellenic Maritime Carriers, a Greek shipping company, which has already leased most of its fleet for up to three years ahead. The inaugural results since its listing reflect the strength of the shipping market. A prospective yield of over 10% with a price/earnings ratio of less than five times seems compelling to me and I increase our holding in this defensive stock.

Thursday Buying more shares in GlaxoSmithKline, which remains a staple for income funds with its stable earnings and good dividend yield. There have been concerns focusing on several expiring patents and the prospect of a hostile Democrat in the White House. But these are long-term concerns, while the company’s defensive characteristics make it a compelling investment in today’s febrile equity markets.

Friday Trip to Manchester for a lunchtime meeting with IFAs, where I reiterate my cautious view of the markets, noting a poor outlook for 2009. Opportunities can be found, but income investors have to be selective. Afterwards back to a rain-soaked Hertfordshire and my aviation hopes dashed once again – nice weather for ducks.

  • Michael Gifford is the manager of the Old Mutual Equity Income fund. His diary runs from September 6-12.