My Yahoo!"We like to take very strong bets on specific sectors, but it's hard to find things we're comfortable with now," Guy says. There are, however, plenty of things he's avoiding.
Take banks. "We think that people have unrealistic expectations, given the lack of corporate activity [M&A, IPOs]," he says. The sector is underweighted in Guy's traditional funds and is an important short position for the hedge fund.
TMT—telecom, media, and technology—is another sector Guy is wary of, even though prices have been in a downtrend for nearly a year and have corrected sharply lately. Guy is bearish on such service providers as France Télécom, KPN and Deutsche Telekom. "They have been spending aggressively, and as a result their returns on capital at the moment are absolutely appalling."
A better choice, Guy says, are operators, such as Telenor, the Norwegian phone company. "It was floated [in Dec. 2000] at a real knock-down level," he notes. "And they have a high return on capital." Guy also likes Telecom Italia, Telefónica and Telekom Austria for similar reasons.
Telecom equipment makers aren't all that attractive, either, Guy says. He's underweight in both Nokia and Ericsson. "Estimates for the handset market are still too high," he says. "Expectations are for more than one in two people replacing their phones this year. I think that's just unrealistic, since gprs phones won't be available. People will wait until next year to upgrade."
Ditto for Ericsson. "If life is more difficult this year for Nokia, Ericsson could be as bad as last year. We're also worried that margins on 3G equipment will not be as good as on 2G, because there's a lot more aggressive competition."
If you must buy something in European technology, Guy suggests taking a look at Philips, trading at less than 20 times estimated 2001 earnings. "Philips is also exposed to some good growth areas as well, such as digital television."
Where else? "Oil is a very safe place to hide," Guy says. Not necessarily as a bet on oil prices, though. Take TotalFina, one of his largest positions in both the hedge fund and the unit trust. "Management has done an excellent job over the past few years, buying PetroFina and then Elf," he says. "They've still got huge cost savings to come out of that. While other oil companies are going to be struggling to replace reserves, Total's got lots of new wells coming on stream."
Another safe haven: food and beverage companies. Take Heineken: at $54 the stock sells for 27 times 2001 estimated earnings. "We don't think it's expensive, given the quality of earnings and growth they deliver. It also benefits from a strong dollar." In the past five years, Heineken has posted 14% annualized growth, and analysts expect 11.5% growth a year in the next three to five years, according to Thomson Financial/IBES.
Though Guy is the lead manager of the funds, it is by no means a one-man show. The hedge fund's name, Capella, is that of a bright star, part of a constellation with several smaller stars nearby, and it describes the way Gartmore manages money. Guy has shared responsibilities with his comanager Guillaume Rambourg for most of his tenure at Gartmore. Four portfolio managers help out, and a team of 19 analysts keep tabs on 350 companies and feed their best ideas to Guy and the other managers.
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