Share buybacks and Director purchases help to underpin UK Equities

Gartmore’s UK equities team believes that recent market falls have left some stocks significantly undervalued. Sacha Sadan, manager of Gartmore’s £348 million UK Growth Fund, draws encouragement from the recent spate of share buybacks. “Legal & General, Bradford & Bingley, Taylor Wimpey and GlaxoSmithKline have all launched or extended share-buyback programmes in the past few weeks,” notes Sacha.

This is important because companies, with their unique understanding of their own operations and the markets in which they operate, are in the best position to ascertain the real value of their assets. In late July, GlaxoSmithKline more than doubled its share buyback programme to £12 billion.

Simon King, manager of the £217 million UK Focus Fund comments that, “a sharp rise in the number of directors investing in their own shares is further evidence that the stock market is undervaluing corporate assets”.

In the near term, both managers are prepared for a further period of unsettling news, as banks and other financial institutions reveal the extent of their exposure to structured products based on US sub-prime mortgages. However, their funds are positioned to benefit from a rebound in investor confidence. “The recent indiscriminate sell-off means that it is possible to invest in excellent UK companies with a virtually or entirely undisturbed trading outlook, some with prices between 10 per cent and 20 per cent lower than they were just two months ago”, said Sacha.