F&C reaps rewards of macro moves

Peter Ewins, the manager of F&C Global Smaller Companies, boosted exposure to America, cut weighting to Britain and outsourced its Japanese stocks - moves that have paid off so far.

Peter Ewins, the manager of F&C Global Smaller Companies, boosted exposure to America, cut weighting to Britain and outsourced its Japanese stocks – moves that have paid off so far.

Over the past six months the £184m F&C Global Smaller Companies trust has reduced its exposure to Britain and increased its exposure to America. It has also sold out of its Japenese stocks, choosing instead to outsource its Japenese portfolio to external managers.

Peter Ewins, the lead manager of the trust, which was launched in 1889, says the macro calls he made over the past six months have proved right. “We were concerned Britain as a whole might not do very well and that sterling would weaken,” he says.

“We were particularly concerned about the consumer side of the British economy for more than six months. We’ve been skewing these stocks for quite a while.”

The reduction in exposure to British companies was predominantly redirected to-wards America, mostly by increasing holdings. However, Ewins has bought into new positions, including some housing-related stocks.

“America is further down the line in terms of its economic cycle,” he explains. “The market is benefiting from its interest rates being cut. On a currency level we thought the dollar might turn. We got it right on those macro calls. A lot of it is the currency. You have to bear that in mind when you are running a global fund.”

In addition, Ewins says a return to favour of value stocks in America, has benefited the trust. His weighting to America is more than 40%, while British stocks account for 34%.

“The turnaround has been quite dramatic,” says Ewins. “Switching out of Britain has been a good move. It’s been a good six months for the fund in America.”

At the end of April there were 229 stocks in the F&C Global Smaller Companies trust. Now there are just over 200. This is likely to fall even further as the Japanese portfolio within the trust is outsourced on a fund basis,
rather than invested in individual stocks. The reason for
the change says Ewins, is performance.

“Internally F&C’s record of adding value in Japan has not been great,” he says. “That’s been common for most groups. We felt we’d like to find someone else who can manage the money more successfully. We are better off using funds with a strong record and a Japanese base. We want to add value in Japan as we do elsewhere.”

The funds to which Ewins outsourced his Japanese exposure are the Axa Rosenberg Japan fund and the iShare MSCI Japan. Ewins is using iShares to give him an index return while he considers other funds.

“With Japan, it’s hard to find consistent added-value,” he says. “It has not been a great part of the world to invest in. I’m still looking, but it’s tricky.”

There is a 4.75% weighting to Japan in the F&C Global Smaller Companies trust and about 6% in Asia ex Japan. Two years’ ago the Asian portfolio was also outsourced to external managers. There are about six underlying Asian funds within the trust.

Tim Cockerill, the head of research at Rowan, says he is
comfortable with the trust outsourcing its Japanese and
Asian exposure. But he says the trust’s combined weight
of 74% to America and Britain is too high.

“The concept of outsourcing is fine,”says Cockerill. “It’s acknowledging they don’t feel there is the necessary expertise within the company. That is good
because the manager is doing their best to get the results.
But I would like more in Asia, Japan and Europe. The portfolio is still UK and US focused.”