By James Thorneley Baillie Gifford's European Oeic fund is negative on telecom operators but bullish...
By James Thorneley
Baillie Gifford's European Oeic fund is negative on telecom operators but bullish on mobile telephone stocks such as Ericsson and Nokia.
Andy Strathdee, who runs the portfolio, said the main problem operators will face is the cost of licences to allow them to provide upgraded infrastructure, in particular data transmission.
He believes there will be a large amount competition within between operators for the licences, which will increase the cost of obtaining one. He has no exposure to either Telecom Italia and Deutsche Telecom which make up 1.93% and 1.7% of the portfolio's benchmark, the FTSE Europe ex UK.
While the licence issue will have a negative effect on operators Strathdee believes it can only be positive for Nokia and Ericsson and is overweight both stocks. He said: "To justify spending, say £3bn, on a licence they will need to aggressively market its network to get a large share of the user market. This may mean giving away free handsets to entice consumers to sign up."
Strathdee is joint manager of the fund along with James Anderson, head of European equities, but has been given increased responsibility for it. This is because Anderson is taking over from Max Ward as manager of the £1.6bn Scottish Mortgage investment trust. Unlike many European teams at other fund management groups the seven strong team at Baillie Gifford still divide responsibilities in terms of countries rather than sectors. Strathdee said: "Brokers analyse Europe in terms of sector so I think it is important to look at the market from a different perspective."
Although the team is divided in terms of countries, the investment strategy is bottom up. It looks for long-term sustainable growth, which eliminates cyclicals and most utility companies. The portfolio is relatively concentrated with between 40-50 holdings. Strathdee said the fund must be managed within the framework of stringent risk controls. Exposure to either Germany and France may not deviate from the index by more than 10%, while for smaller markets, such as Italy, it must not deviate by 5%. In terms of sectors and stocks deviation is restricted to 6%.
The £49.4m is ranked seven out of 88 in the Micropal Europe ex UK peer group over three years, offer to bid with net income reinvested. It is one of the smaller funds in the top 10 during the period.
The small size of the fund helps to get fully weighted when investing in IPOs but Strathdee added that was its only real advantage. He added: "There is an 80% overlap between the fund's portfolio and the £5bn European pension portfolios we manage. Both have similar performance figures."
Over three years the fund has risen by 157.4% compared to an average rise in the sector of 105.9%.
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