Telecoms retain growth potential
Nokia’s Capital Market Day in Helsinki last month gave great relief to those with valuation worries about telecommunications equipment-related stocks.
The company, known for a well-reputed and conservative investor relations policy, gave a top line growth target of 30–40 % for 2000, and 25–35% for 2001–02. Meanwhile, the Finnish industry giant says it expects 1bn mobile phone users already in 2002 instead of 2003.
This new information helps to explain the ever higher valuation of some technology-related stocks.
We continue to heavily overweight the sector as a whole, with a focus, however, on some key subcontractors and other co-operating companies to the mobile phone industry.
On the infrastructure side we expect a “normal” 2000 before third-generation orders accelerate growth during the following years and for the foreseeable future.
According to our investment philosophy, we will not invest in industries with equal or slower growth than the economy in general, that is, over the cycle.
Some potential turn-around cases or companies facing structural changes end up in our portfolio for some time, but the long-term investments are all carefully selected growth stocks.
In terms of our industry allocation this has been a year of spectacular returns within telecommunications, telecom equipment and new media.
We believe these industries will further enjoy great potential in the years to come. However, the (over?)-heated merger and acquisition sentiment in telecom stocks may cool down, bringing valuations to lower levels. Among other growth sectors, we expect medical and biotechnology stocks to continue to underperform in relation to the mentioned industries.
On geographical allocation issues, being rather small on an international comparison basis means our asset management has so far not covered every single market in the world. Rather, we have heavily over-weighted Finnish shares.
However, a growing portion of assets is invested abroad, mainly in western countries. The need for geographical diversification is better reached by stock picking – therefore we do not believe in index investing.
Our flagship international asset allocation fund FIM FORTE, has traditionally overweighted growth stocks throughout the history of the fund.
We maintain an active asset allocation, implying a normal equity allocation of 70–90% with bonds and cash representing the remaining holdings. However, every now and then the equity allocation has been as low as 25–30% .
Total assets under management exceed e500m.
Markku Kaloniemi is fund manager of FIM FORTE and chairman of FIM Asset Management. Niklas Geust is chief analyst at FIM Securities and board member of FIM Asset Management in Helsinki