Gartmore launched its UK Absolute Return fund this week for Ben Wallace, a hedge fund manager. The fund opens to investors with a neutral position relative to the cautious stance Wallace has adopted on his other portfolio, Octanis, in recent months.
“The fund is relatively neutrally positioned at the moment – I can see both sides of the coin,” he says. As positive indicators, Wallace points to low interest rates, fiscal stimulus and the fact that markets have fallen a long way. On the other hand, rising unemployment, low savings rates and stretched corporate balance sheets are clear negatives.
He has looked for companies that will be winners in a recessionary environment, such as Pearson, an international publishing group. Wallace says the company has been investing during the downturn while its competitors have cut their capital expenditure.
Meanwhile, he is avoiding the retail sector in the view that this area of the market has been discounting an overly optimistic recovery scenario. “Some share prices are discounting a recovery before we have seen the bottom of the market, such as retail stocks. I am not convinced consumer spending will rebound, due to the lag of unemployment,” he says.
Consumer goods companies, especially at the luxury end of the market, may also suffer as consumer spending habits change, Wallace says. “Some consumer goods companies, for example in the spirits area, are discounting that the top-line will hold up well, but some consumer behaviour will last, such as buying brands on the next tier down,” he adds.
However, Wallace says financials is a difficult area on which to take a definitive view. The only bank he has taken a long position on for some time is Barclays, because it has not asked for funding from the government, unlike several of its competitors. “We are a reasonably long way through the credit cycle. If Barclays had the same risks inherent in it as Lloyds did, it would have had to go to the government by now,” he says.
UK vehicle joins Gartmore absolute return stable