Sticking to our stock picking discipline

"Unprecedented circumstances have conspired to leave 2008 as one of the most challenging years that many investors have had to face for some decades", say Roger Guy and Guillaume Rambourg, managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund.

Faced with extreme equity market weakness and a severe economic contraction, Roger and Guillaume are sticking to their stock picking discipline which has been successful for over ten years. For 2009, this means maintaining their bias towards large caps over mid and small caps. It is these companies who, in the main, have sufficient capital and cash flows. In addition, large cap companies offer potentially more resilience in market downturns, due primarily to their pricing power and ability to pass on the increasing cost of raw materials, as well as greater power to access credit argue Roger and Guillaume. All of which is in contrast to their mid and small cap counterparts who, by and large, rely more on short-term bank liquidity and have greater exposure to a narrower set of domestic European markets. The managers have lowered their exposure to cyclical stocks and are focusing their attention on companies with high earnings visibility and defensive features. Their outlook continues to be cautious and their preference remains for high quality growth companies with strong balance sheets.

Recent portfolio changes have included lowering exposure to cyclical stocks by reducing weightings in Voestalpine, BASF and Akzo and disposing of Siemens and Yara. However, Roger and Guillaume continue to monitor these stocks very closely. Despite trading at multi-year and sometimes multi-decade lows, cyclical stocks need to be more than just cheap say the managers. They need to be at trough valuations with visible signs of earnings growth potential. The managers believe that cyclical stocks are some time away from that. In terms of sectors, the portfolio is skewed towards selected stocks in the telecoms and healthcare sectors, deemed as attractive because they represent classic defensive areas of the market.

The Gartmore European Selected Opportunities Fund and SICAV Continental European Fund have delivered first quartile performance over 1,2,3,4,5,10 years and since inception. Roger Guy and Guillaume Rambourg also manage the European Investment Trust and European Absolute Return Funds.