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Manager focus: Jeremy Hall

The fund managers at Cartesian are sticking with cautious portfolios among fears that markets could head back towards recent lows.

Jeremy Hall, the manager of the UK Equity 130/30 fund, says it will be sticking with defensive, high quality names on the long book, as he anticipates the current rally may be reversed.

“We still retain a cautious stance on the UK market. There was a pretty sanguine reaction to an appalling budget, which leaves the government in all sorts of bother. They will be cutting spending and raising taxes to try and get the economy and debt levels on a stable footing.”

Hall and the other managers at Cartesian, David Stephenson and Andrew Kelly, have been defensive since before the fund was launched in November 2007.

“The investment view in 2007 was one of caution. We thought the markets were well overdue a cyclical downturn, which would be consumer-led. We were a bit early and missed the last legs of the debt party, but broadly this theme has been played out.”

On the fund’s long book, it has been exposed to defensive businesses with little debt, which were not a beneficiary of the excessive activity seen in previous years. Hall liked, and continues to back, companies where the levels of profitability are steady and which are expected to trade steadily through the cycle.

Shorting positions include the opposite of these companies – those that are very dependent on financial leverage and are beneficiaries of abnormally high levels of activity such as miners, industrials firms and consumer cyclicals.

“These themes broadly remain intact. We have seen a bit of a spike in economically-sensitive names but we believe this is due to technical reasons or a market sentiment rally from oversold levels. Nothing has fundamentally changed. We think these stocks are overvalued.”

Despite trying to choose companies with resilience, Hall admits a holding in National Express did not work out well. He says he believed the underlying business to be cash-generative and able to service its debt, but volume growth has diminished and the market was “spooked” by its amount of debt.

However, a short position in mining was positive for the fund’s performance: “This time last year managers in the UK seemed very accepting of the de-coupling theories and mining company valuations on the back of that. We were more sceptical and since then the mining bubble has been well and truly pricked. We have made good progress on the short side.”

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