Managers take wait-and-see stance

The Hiscox Insurance Portfolio fund increased its stake in Marsh & McLennan after its share price plummeted. But fund manager Alec Foster emphasises it holds only 2.23% of the fund in Marsh: “We are not short-term traders. But after its price fell, we calculated its price was worth less than its break-up value.”

Foster (pictured) admits the investigation is a nightmare for the sector in the short term, but argues the insurance industry is stronger than it has been for the past 10 years: “General insurance premiums are still high and we have just had figures from AIG, which were good. The industry has just survived four hurricanes in six weeks, which it could not have done 10 years ago. If the insurance industry comes out of this stronger and more transparent, then that is a good development.”

Tana Focke, manager of the Smith & Williamson American trust, says she “luckily” sold shares in AIG two weeks before the
announcement by Spitzer, to leave her with an underweight position.

But she has been caught with a holding in Aetna, which has just admitted it has received a subpoena from Spitzer, and whose share price “had made a new high of $108.10, but it has now come back to $85.80”.

Focke says that she will not sell the Aetna shares, however: “I am not going to worry about the insurance sector or whether there are now companies that are undervalued. There are opportunities to make money in other sectors that I will focus on instead.”

Robert Graham-Brown, a fund manager on the Threadneedle US desk, says it has reduced its holdings in AIG and Hartford: “This is not going away in the short term. It is very difficult to value companies until we know if there will be fines and how much they will be. Marsh & McLennan could face a fine of between $100m and $2bn, or none at all.

The sensible decision is to take a wait-and-see approach.”