Gartmore Cautious Managed Fund update

Having held an overweight exposure to equities over the past year, the Gartmore Cautious Managed Fund effectively moved to an underweight exposure in June. Chris Burvill, Gartmore’s Head of UK Equity Income and manager of the Gartmore Cautious Managed Fund, says; “We have redeployed some cash in the UK bond market, locking-in attractive yields of around 5.7%.”

Chris has become more optimistic about gilts after recent falls and raised the Gartmore Cautious Managed Fund’s bond exposure to 43% - the highest it’s ever been. “We’ve positioned the Fund more defensively recently. Our equity exposure is just below 50% and we see no reason to go above 50% now.”

The Fund’s equity portfolio features high weightings in “mega-caps”, such as BP, Royal Dutch Shell, HSBC, BT and Vodafone, which are trading on low valuations compared with the rest of the market.

“The Fund is more heavily weighted in mega-caps than it has ever been,” says Chris. “It’s early days, but the principle looks right. Over the past month or so, we’ve seen some signs of improvement among the mega-caps, with Royal Dutch Shell, BP and Vodafone among the best-performing FTSE-100 constituents in June.”

Chris believes that certain catalysts could signal bigger moves on the way for some of these undervalued companies. Rumours of a possible bid for Vodafone persisted last month and there has been speculation about a possible merger between BP and Royal Dutch Shell. Some mega-cap companies, such as GlaxoSmithKline and AstraZeneca, have the potential to be broken up after periods of disappointing performance.

The Fund’s blue-chip purchases have been funded by sales of holdings in mid-cap companies that Burvill considers vulnerable to an economic downturn or interest rates rising further. For example, the Fund’s positions in the logistics company, TDG, and paper-packaging firm, DS Smith, have been sold recently.