manager of artemis european growth fund takes up 10% position in out-of-favour sector
Philip Wolstencroft, manager of the Artemis European Growth fund, is running an overweight position in telecom stocks.
The £57.9m fund has 10% exposure to the sector which has been out of favour since the end of the bull market in 2000.
He said: 'These companies have been through the grindstone over the past few years. They have been slashing their capital expenditure and rebuilding their balance sheets. This has led to stabilising revenues and falling costs and as a result their profits are now going through the roof.'
Wolstencroft added that unlike other managers who are only now just beginning to warm to the sector, he has been positive on it since last October and so is ahead of the curve.
In September 2002 Wolstencroft was given the ABN Amro Pan European fund to run and the two were merged at the end of February this year. Within one week of taking on the ABN portfolio he carried out a programme trade, selling 82 holdings and reinvested in 45 that he already owned in the Artemis fund, to get the two portfolios in-line.
He said the result was that rather than the ABN fund being the mirror image of the Artemis fund, it began to move in parallel, ready for the merger which took place on 21 February.
The one holding Wolstencroft kept from the ABN fund was French pharmaceutical stock Sanofi Synthelabo.
Wolstencroft is confident he can find quality stocks on good valuations with earnings growing at a strong rate. He believes share prices have come back to reasonable levels and now is a positive environment for investing. The fund is trading on a prospective P/E of nine times next year's earnings and, according to Wolstencroft, the underlying holdings are all producing double-digit earnings and are on course to exceed market expectations.
He said: 'Crudely speaking, we are looking to buy cheap growth stocks that are growing faster than expected in sectors where institutional investors are getting more positive.'
To achieve this Wolstencroft uses Artemis' proprietary screening system SmartGarp, that he himself devised in the early 1990s.
The system tracks more than 2,000 stocks in the pan-Europe arena, taking information from 1,900 analysts and over 200 analytic firms and identifies stocks and sectors that are likely to outperform the market.
Looking at geographical regions, Wolstencroft said the SmartGarp system does lead him to countries with the best prospects. As a result he is overweight in Ireland, Spain and Hungry and underweight in Germany, Switzerland and Italy.
In Germany, he is avoiding the large cap domestically exposed stocks and is instead focusing on the international companies that have good demand.
As an example of this he cited drug company Altana, which he said is growing its earnings at over 20%pa and has a strong product pipeline. In this case he added the company is not exposed to Germany, it is just domiciled there.
Over one-year to 17 March 2003, the Artemis European Growth fund is ranked third out of 106 fund in the Europe ex UK sector, returning -24.8%, compared to the sector average fall of 37.5%, offer to bid.
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