Gartmore’s Cautious Managed Fund steers a steady course

Gartmore’s Cautious Managed Fund has been positioned defensively through the recent market storm and manager Chris Burvill sees little reason to alter course now. Burvill is concerned that some banks could announce write-offs in coming weeks as a result of losses derived from investments backed by US sub-prime mortgages.

“One of the problems is that, while most hedge funds are marked-to-market, so we know which ones have been most affected by the collapse in US sub-prime, banks have more discretion and the results we have seen lately don’t tell us everything we need to know,” says Burvill.

“If we get bank write-offs, the ability of banks to lend and make profits will be affected. There’ll be less funding, fewer mortgages and less scope for consumers to borrow and that’s bad news for our consumer-dependent economy. I don’t believe it is likely that the stock market, which gets a large part of its profits from the banking sector, can be insulated from that.”

During the spring and summer, Chris Burvill took a number of steps to shift the Cautious Managed Fund to a more defensive position. The Fund’s equity exposure was reduced in favour of a higher weighting in gilts in June. In another defensive step, the Fund’s blue-chip exposure was increased to its highest-ever level at the expense of mid-cap stocks. The Fund is underweight financials too.

“We’ve worked hard to create a strategy that has the potential to protect investors’ funds on the downside. We’ve been concerned about credit, the financial system and valuations in some sections of the market. We’ve been right to be concerned.”