Gartmore sees value among UK financials

Following the crisis at Northern Rock, Gartmore’s UK Equities team is viewing the stock market with cautious optimism and has been capitalising upon periods of price weakness to add to its favoured stocks. Alongside overweight holdings in sectors such as mining, electronic & electrical equipment and aerospace & defence, Gartmore has added to its positions in high quality banks and insurers.

“Gartmore has no exposure to Northern Rock and has not invested in the mortgage bank for some considerable time. However, the team considers that a certain amount of indiscriminate selling in the sector has created investment opportunity and left some fundamentally strong banks undervalued,” said Sacha Sadan, manager of the £341m Gartmore UK Growth Fund.²

Sacha is encouraged that valuations are low and dividend yields high, viewing Lloyds TSB and Barclays as interesting and “possibly the next big stocks to turn the operational corner”.

Both Gartmore’s UK Focus and UK Growth funds are overweight financials as a whole. However, this is due in large part to positions taken in the insurance rather than the banking sector. Here, Prudential and Royal & Sun Alliance Insurance are among the favoured picks.

“Prudential shares have fallen, yet the company is unaffected fundamentally by the crisis in US sub-prime mortgages or the Northern Rock affair,” says Sacha.

“Prudential’s US business has significant growth potential, it has a world-class Asian business and is a beneficiary of favourable demographics, with private pensions growing and government provision in decline.”