Roger Guy goes defensive on US and Chinese growth concerns

Gartmore European fund manager Roger Guy has gone defensive after a choppy second quarter saw his investment trust drop 16.8%. 

In the three months to 30 June – a stretch dominated by difficult economic conditions which saw the FTSE World Index - Europe (excluding UK) fall 16.4% – Guy slashed the Gartmore European Investment Trust’s exposure to cyclical stocks by trimming back holdings in banks Credit Suisse and BBVA, cement supplier Holcim, footwear maker Inditex, Nokia, and Galp, an oil and gas company from Portugal.

Gartmore expects the economic headwinds to persist due to US and Chinese growth concerns and poor consumer confidence.

The trust's interim management update reveal that Guy used the proceeds to invest in defensive stocks characterised by high dividends, earnings visibility and strong balance sheets. He bought into French utilities GDF Suez and EDF and opened positions in Electrolux, the white goods giant, and tyre manufacturer Michelin.

‘Electrolux was added because of its accelerated product launch and restructuring programme and we are optimistic that Michelin will benefit from cost cutting and a reduction in raw material costs,’ he explained in a statement.

The largest contributors to performance over the quarter were the investment company’s holdings in Anheuser-Busch, Galp and luxury fashion brand Christian Dior, all supported by encouraging sales and volumes.

Spanish television operator Gestevis Telecinco lead to the biggest loss, as Spanish stocks slumped on concerns the rescue package for Greece would not be the last bailout for southern Europe.

Guy, whose investment trust trades on a discount of 6.1%, said the Gartmore team remain upbeat about Europe and believe stock valuations look ‘compellingly’ cheap.

But the group warned the company reporting season had become irrelevant to markets as macroeconomic news continued to weigh on investors’ minds.

‘This has influenced our bottom-up stock-picking process which now also incorporates a top-down view,’ Gartmore said. ‘It has become increasingly apparent tackling the issue of sovereign debt and growth concerns will be a drawn out process leading to an uncertain outlook for the next three to six months.’