manager of gartmore cautious managed fund sees stocks benefitting from cheaper materials
Chris Burvill, manager of the Gartmore Cautious Managed fund, has taken an overweight stance on manufacturing stocks, which he expects to benefit from cheaper materials costs this year.
Burvill is currently running 56% of his portfolio in equities and said the negative factors that led to the decline of manufacturers in recent years could turn around this year, driving a return to performance.
He said that looking to an economic upturn and an improvement in sterling, raw material costs are likely to come down. As such he is keen on basic and general industrials, including engineering and chemical stocks.
Burvill is less optimistic on the outlook for banks, as he believes it will be hard for them to move in line with the market.
He said: 'Banks are supposed to be linked to an economic upturn, but I can't see this happening because they have no scope to cut costs any further and they have very few bad debts to pay back. It is a competitive industry with little growth at a time when the market wants to see either recovery or growth.'
Of the equity portion of his portfolio, Burvill is currently invested 81% in large caps, with the remainder mostly in mid cap companies.
On the fixed income proportion of his portfolio, Burvill is mainly invested in what he describes as more stable investment grade end of the sector, although he has boosted performance slightly by investing further down the credit scale.
After a long bull market, Burvill said that gilts are now showing signs of age, to an extent that they are not reflecting the risks of holding assets which offer just a 4% return, at a time he argued inflation is starting to rise.
He said: 'Gilts will be in trouble for the rest of the year and there will be more issued, against a background where UK equities will do well. At the end of the year I expect the return on gilts to be around 4.5%-5%, which will put a ceiling on how much more corporate bonds can perform.'
However if bonds do somehow manage to outperform equities, Burvill said his fund is protected because it is still exposed to corporate bonds, hence its cautious managed tag.
The fund launched at the beginning of February, which Burvill said was a difficult month to position the portfolio and get cash flows coming in because of the falling equity market.
By early March he said he was in position to start taking advantage of falling share prices and during the Iraq war in March he said the performance of the fund picked up again.
From launch on 7 February to 30 April, the fund, on a mid to mid basis, is ranked 8 out of 33 in the Cautious Managed sector, returning 5.84%, compared to the sector average of 4.4%, according to Standard & Poor's.
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