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Investing in a bear market

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					                                                                                                         Fundamental UK investment




Investing in a bear market
                             With challenging conditions set to continue for UK equity investors, picking stocks that
                             are well positioned to weather the storm is now more important than ever. David
                             Stevenson, the highly experienced, Citywire ‘A’ rated fund manager of the Ignis
                             Cartesian UK Opportunities Fund*, provides ten tips below for investing in a bear
                             market. David has 19 years’ investment experience, having successfully managed UK
                             equity long only and long/short funds through both bull and bear markets. He was a
  David Stevenson            founding partner of Cartesian and the Ignis Cartesian UK Opportunities Fund is top
Cartesian Capital Partners
                             quartile since it launched in December 2005.†


1. Stick with a proven process                                    4. Look for companies with resilient earnings
    Cartesian has been using the same stock picking template         Earnings are under pressure right across the market, but
    for more than a decade, through a variety of market              investors can mitigate that risk by looking for companies
    environments. The process has delivered outperformance           with more defendable earnings. This means companies
    in the past, and it is working well now. In fact, the            with big franchises, large market shares and companies
    attributes that Cartesian looks for in stocks – notably          that have leverage over their competitors or their
    earnings quality and financial robustness – seem more            suppliers allowing them to eke out more market share or
    important now than ever before. It would be a mistake to         a better margin.
    suddenly try to come up with a new approach just
    because the market is tough.
                                                                  5. Think big
                                                                     Big brands have the kind of footprint that will allow them
2. Balance sheet quality is paramount                                to survive through a difficult environment. Companies like
    Companies that are heavily indebted may not survive the          Vodafone, Centrica and National Grid are all likely to
    next couple of years. This may seem extreme but that is          outperform. These operate in areas where spending
    what we are dealing with at the moment. Companies                remains necessary. Other attractive areas include food
    with low or sustainable gearing, and which therefore have        retailers and pharmaceutical companies.
    a degree of self-determination over their future and
    developing their business, are relatively attractive.
                                                                  6. Do not trust company directors’ dealing
                                                                     As the market moved into the downturn, there were
3. Be wary of unsustainable historic dividends                       plenty of examples of company directors buying up stock
    Companies have had free and easy access to very cheap            in their own companies. These directors assumed they
    debt for a long time. This has led many companies to             knew better than the stock market and were bottom
    borrow to fund share buybacks, special dividends and             fishing, but so far they have been proved wrong. Now
    supernormal dividend growth. That borrowing has now              directors’ activity has slowed, as company outlook
    been cut off, and those companies that over-engineered           statements broadly indicate that times are tough and are
    their position and have cyclical earnings streams are going      unlikely to improve in the near-term.
    to be in trouble.

                                                                     *Source: Citywire as at 27/02/09. †Source: Lipper, bid to bid, net
                                                                     income reinvested as at 27/02/09, excluding initial charge. Past
                                                                     performance is not a guide to future performance. The value of
                                                                     investments and the income of them can go down as well as up and
                                                                     is not guaranteed. Exchange rate movements may cause the value of
                                                                     investments to fluctuate.




                                                                                                     www.cartesiancapital.co.uk
                                                                                                                         Fundamental UK investment



7. Avoid the temptation to become a short-term trader                          10. Be patient
    Cartesian’s skill is as an investment manager, not as a trader.                 The UK stock market will recover, but not overnight. At
    Investment views need to be made on at least a one year                         the moment market conditions remain challenging and it
    basis, and a bear market does not change that. At Cartesian                     would be foolish to invest expecting the market to
    the average holding period is around two years, and that                        bounce back straightaway. Cartesian expects the market
    is unlikely to be affected by the current environment.                          to recover only once macro statistics show that borrowing
                                                                                    has come down (and saving gone up), unemployment is
                                                                                    peaking and the housing market has bottomed out.
8. Do not be afraid to hold a more concentrated
   portfolio
    In a bear market the number of attractive stock ideas                                                  David Stevenson
    tends to fall. Over the past year, the Cartesian UK                                                    Investment experience: 19 years
    Opportunities Fund has moved to a more concentrated                                               David graduated from Edinburgh
    core of around 40 holdings. As and when opportunities                                             University with a degree in Economics
    arise, new positions will of course be added. The                                                 and Accountancy before training as a
    important lesson, however, is not to hold low conviction                                          chartered accountant with KPMG. He
    stocks just for the sake of being diversified.                                                    was involved latterly in corporate finance
                                                                                                      before moving into venture capital with
                                                                                                      Dunedin Fund Managers. In 1993 David
9. Think independently
                                                                                                      moved to SVM, where he managed the
    Do not be fooled by consensus thinking or the latest                       SVM UK Opportunities Fund from its launch to the end of
    fashion. Fundamental analysis of balance sheets and                        October 2005. He also had co-responsibility at SVM for an
    earnings will give a clear picture of companies’ future                    institutional client base with funds totalling £600m.
    prospects. This then allows a portfolio to be built up from                In December 2005, David became one of the founding
    individual holdings – “bottom up” – without having to                      partners of Cartesian.
    form a view on overarching macroeconomic, consensus or
    benchmark themes.




     Further information:                                                      Cartesian Capital Partners is a 50-50 joint venture
     Professional advisers please call:                                        between the four Cartesian partners and Ignis
     +44 (0)845 60 50 444                                                      Asset Management.
     Email:                                                                    The partnership enables Cartesian to focus
     brokersales@ignisasset.com
                                                                               entirely on investment management while Ignis,
     Web address:                                                              which has around £70 billion of assets under
     www.cartesiancapital.co.uk                                                management,* delivers the distribution, sales,
     Telephone calls may be monitored and/or recorded for the purpose of       marketing and back office operations.
     security, internal training, accurate account operation, internal
     customer monitoring and to improve the quality of service.                *Source: Internal as at 31/12/08.




This information is for professional clients and investment professionals only and should not be relied upon by retail clients.

Ignis Asset Management is the trading name of the Ignis Asset Management Limited group of companies which includes Ignis Asset Management Limited,
*Ignis Investment Services Limited and *Ignis Fund Managers Limited. Issued by Ignis Investment Services Limited. Registered in Scotland Number SC101825.
Registered Office: 50 Bothwell Street, Glasgow G2 6HR. *Authorised and regulated by the Financial Services Authority. www.ignisasset.com
                                                                                                                                                B892.03.09




                                                                                                                       www.cartesiancapital.co.uk

				
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