Gartmore’s Guillaume Rambourg has positioned his European Absolute Return fund for a steady improvement in markets towards the end of this year and into 2010, but cautions against excessive optimism.
The manager of the £104m fund says he does not believe recovery will be rapid and dramatic. “Third quarter and fourth quarter earnings will show recovery, but only after a pause,” Rambourg says.
“It is my view that 2009 is a copy of 2003—September was the only month in 2003 past March which was down. It could be the same scenario this time around. Macro news is only getting better over the next few months,” he says.
“We are quite comfortable about [our positioning going into] the end of the year, with maybe a bit of worry about a hiccup in China. We are relaxed about the year-end, but in 2010 we don’t believe in a strong V-shaped recovery. It will be a reality check for optimistic investors.”
Rambourg has altered his long and short positions and his net market exposure quite significantly over the course of this year to reflect changing market conditions.
Casting his eye back over the nine months since the fund came to the market, Rambourg says the vehicle was launched in the middle of a tough market. Initially it had equally matched long and short positions, with the short book including banks, consumer goods, media and leisure stocks. Defensive long holdings included telecoms such as Nokia and France Telecom, and short-term trades in selected financials such as Credit Suisse proved successful.
“I began to increase the longs on the third of March—the market was down 8% in the first week of March and was very oversold,” he says. “When the European market turned on March the ninth we had a list of compelling longs we wanted to add,” he says.
Between March and May Rambourg increased the fund’s gross exposure from 40% to 80%, taking the net position from zero to 25% or 30%. “The long book was outperforming and we focused on oversold defensives because in the later stage of the sell-off they were very aggressively sold. Roche and Nestle made us a lot of money. Quality cyclicals were also in demand and we bought some of them, including Christian Dior and Daimler,” he says.
From May to July Rambourg’s short book saw significant contributions from the Euro Stoxx 50 Future index, while long positons in GlaxoSmithKline, Nestle, and Novartis began to come into their own.
“In the most recent period, between July and August, we did better with a decent gross, decent net, and some good longs going into the fund,” Rambourg says. “Stocks such as Daimler, HSBC and Rio Tinto hit their price targets and were sold,” he adds.
The portfolio comprises about 50% fundamental stock ideas which the manager holds for between six and 18 months, and 50% in short-term tactical positions that have a much faster turnover of weeks or even days. The longer-term holdings include stocks with undervalued drivers to unexpected earnings, organic growth or acquisition potential, and companies that are restructuring or have cut costs.
The short-term positions may include businesses that are launching new products, have seen a change of management, earnings revisions or a technical catalyst likely to boost a firm’s performance.