Telecoms turning a corner

Punishing rude awakenings brought on by this summer’s financial crisis have led investors to seek refuge in defensive sectors, amongst other strategies, in a bid to reduce the volume of risk, volatility and cyclicality within their portfolios. The European telecoms and pharmaceuticals sectors, perceived as defensive by nature, have underperformed over the past couple of years largely due to various structural concerns within their respective sectors. But as the latter remains entangled in issues ranging from pipeline paucity to patent expiry, Roger Guy and Guillaume Rambourg, co managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund argue that it may be time for investors to re-evaluate their stance towards telecoms.

“After a very long and painful cycle of earnings downgrades for the sector, it seems that an inflexion point has been reached, and some players (Telefonica, France Telecom, Deutsche Telekom) have even surprised positively in the last few weeks. If it is confirmed that a robust earnings upgrade cycle is at hand, we may well see a proper re-rating of the telecom sector over the next few quarters”.

The Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund have delivered first quartile returns over the month and over the quarter. The Funds are also ranked in the first quartile over 2, 3 ,10 years and since inception. Both Funds hold an overweight position in Deutsche Telekom relative to the benchmark, a positive contributor to performance over the month.