Fund changes confusing

Changes to one of the big international share funds to improve its performance aren’t overwhelmingly convincing to one analyst.

Thursday, May 12th 2005, 6:46AM

Foreign and Colonial, a UK investment trust company which is listed on the New Zealand and London stock exchanges has outlined further changes designed to help its performance.

These changes include the introduction of a performance based fee and outsourcing some of the investment management.

The US portfolio, which accounts for 20% of the funds assets will become the responsibility of Investment Manager Selection (IMS), an independent specialist multi-manager which manages and advises on assets of £2 billion. It is expected to appoint up to four underlying US-based managers.

The Japanese portfolio, 5.5% of assets, is to be managed in an enhanced indexation approach, although no manager has yet been selected.

F&C Management will be responsible and accountable for overall performance, asset allocation, gearing and risk management within limits set by the board, as well as stock selection in the UK, Europe ex UK, Emerging Markets/Developed Asia and US smaller companies (almost £1.6bn in total).

F&C will also take responsibility for managing the outsourcing of the US large cap and Japanese portfolios.

First New Zealand Capital investment trust analyst Peter Irwin says outsourcing makes sense, especially in areas where F&C has struggled.

However he says with a mix of different investment styles it becomes hard to work out what F&C stands for.

“We believe that the new structure is a hotchpotch and it seems unclear what the overall objective of the company has become. In particular, we question the rationale for adopting an enhanced tracker for the Japanese portfolio.”

”We find it hard to believe that they could not find managers who could add value in this market,” he says. “Having only outsourced a quarter of its assets, while handing responsibility for managing the outsourced portfolios to the incumbent managers, in our view creates a confused message to potential investors, as does the combination of active management with an enhanced tracker portfolio,” he says.