Large international fund goes through changes

One of the largest international funds that New Zealanders invest in, but little has heard about, has gone through some significant changes to enhance performance.

Wednesday, March 9th 2005, 7:24AM

The dual-listed, UK investment trust company Foreign and Colonial has more than 6,200 New Zealand unitholders who have more than $125 million invested in the company.

Its performance hasn’t been the greatest over the past few years, but the board has announced several significant changes which have been welcomed by leading investment trust specialist, First New Zealand Capital.

During the year its net asset value has risen around 7.5%, but its share price has only gone up 3.2%, thus widening share price discount from 12.4% to 15.9% (or 14.0% using the market valuation for long-term).

The company has been changing its make up recently. It has already begun to increase exposure to private equity, which is expected to be a 'material part' of the portfolio within four years.

Exposure to emerging markets and developed Asia has risen to 15%, while the manager has been encouraged to be more active in using gearing, to maximise returns.

F&C chairman Mark Loveday, has announced a number of other chances recently due to “a continuation of disappointing stock selection in certain regions.” These recent changes are considered by far the most significant for this 138 year-old investment trust company. They include:

The appointment of a 'multi-manager with expertise in the selection, blending and monitoring of specialist managers, to manage a substantial part of the North American portfolio'.
Davina Curling has replaced Stephen White as the manager of the European portfolio.
An evaluation by the board of a number of options together with F&C regarding the management of the Japanese portfolio, although the process is not as advanced as changes to the US portfolio.
At the stock selection level, the managers have been encouraged to take increased risk in those stocks where they have a higher conviction. Rather disappointingly, progress has been too slow with the portfolio still numbering around 500 stocks.
A reduction in the notice period of the management contract with F&C Management (FCM) from 12 to six months and notably no compensation has been paid in respect of the changes.
Jeremy Tigue, the current manager, will continue as lead investment manager although his stock-picking responsibilities will pass to Julian Cane. FCM will continue to be responsible for the asset allocation.

First New Zealand Capital investment trust expert Peter Irwin regards these changes as “a positive development and not surprising.”

“They clearly reinforce the importance of an independent board of directors in monitoring the appointment and performance of managers. However, we have some sympathy with the argument that the board could have gone further and made more radical changes to the management of the European portfolio.”

Irwin says F&C has been “one of our core holdings for years and is widely held by many investors, but shareholders patience has been increasingly tested in the past couple of years.”

“In August, last year we noted that in contrast to some of its peers, the aim is clearly to add value over the long term rather than simply act as a closet index tracker.

"FCM has faced some stock selection difficulties, particularly in the US and Japan, but steps have been taken to resolve these. Now it seems the board has decided that enough is enough and has decided that it is time to address some of these management issues by announcing these significant changes.”

“The genie has now been let out of the bottle and we can only wonder if there are more changes ahead for this stalwart investment trust as it strives to regain the confidence of the market and reclaim its reputation as a good long-term core holding for private investors seeking diversified global equity exposure.”

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