F&C hunts for undervalued firms

Under the management of Paras Anand and the reallocation of two thirds of its portfolio, the F&C European Assets trust is yielding about 6%, which could lure investors back.

The F&C European Assets trust has had a torrid time in performance terms over the past few years.

The trust is fourth quartile over one, three, five and 10 years and has fallen 29.01% in sterling terms against an average drop of 11.58% in the IT European Smaller Companies sector over the past three years to October 20. Concerns over its performance led to a change in management in June.

”We’re looking for opportunities where the market has priced a firm much lower than our valuation of it”

Crispen Longden, who had managed the trust since 2000, was moved off the portfolio and it was handed to Paras Anand, the firm’s head of European equities. In addition, Sam Cosh was brought in from BNP Investment Partners at the start of this month to act as alternate fund manager.

Anand says the decision to shake up the management on the fund was taken to ensure the performance met investor expectations. “There was a small, but important gap in the management of the fund,” he says. “What investors are looking for is a good total return over a full market cycle. The trust had a worse crisis than we expected.” (article continues below)

The trust fell sharply in 2007 as stockmarkets were battered by the subprime crisis. As risk appetite returns to the market, however, F&C aimed to ensure that the portfolio was best placed to take advantage of this.

This meant a review of the positions in the portfolio, the result of which has led to a turnaround of the underlying holdings.

“We had a plan from day one of inheriting the European Assets trust that involved reallocating two thirds of the portfolio,” Anand says. “We are about 75% of the way through that process and were lucky that we took over the portfolio as the sovereign debt crisis in the eurozone meant that assets were still good value.”

In 2008 Glanbia bought Optimum Nutrition, a manufacturer of nutritional supplements for the sports sector based in Illinois, in a deal that Anand says shows a clear expansion outside its core product range and will help the firm continue to climb up the value chain.

Glanbia is now the largest holding (4.1%) in the fund.

While the team is focused on discovering value, however, Cosh is keen to avoid the association between value and low-quality. “When people talk about value it has an association with low quality, but we’re interested in high-quality companies,” he says. “We’re looking for opportunities where the market has priced a firm much lower than our valuation of it.”

While the new team are still in the early stages of their push to turn around the trust, Anand says he is pleased with the pick-up in interest the product is receiving. “Our job is to articulate what the investment aims are and how to achieve them,” he says. “We want to balance capital gains with capital protection and grow our dividend each year.”

With the trust yielding about 6%, the dividend aspect of the portfolio could prove a lure for investors. While it is too early to judge the team’s progress, once the portfolio adjustment has been completed, investors should look for signs of a turnaround in their performance figures.