Exposure to private equity has hurt the performance of the Martin Currie Portfolio investment trust, but Tom Walker, the manager, is positive on the outlook and is sticking with his positions.
Walker, who also runs the group’s North American open-ended fund, says: “Private equity has been an underperforming asset class because of the crisis in the credit markets, but we take a long-term approach and we believe what is going on now will yield good returns over the next few years.”
Walker holds Candover Investments and SVG Capital, which are both trading on discounts to net asset value (NAV) of up to 60%, but he favours the F&C Private Equity Trust, which is the largest position on the fund, because of its mature portfolio. He says: “A lot of private equity deals done in 2006 and 2007 were not very good as there was lots of money chasing too few deals. But on the F&C fund the deals were completed earlier. We think it is sitting on healthy gains.”
Walker has run the £131m Portfolio trust, formed from a restructuring of the Scottish Eastern trust in 1999, since 2000. It is primarily aimed at British private client investors. His investment priorities are positive changes such as improving margins, increasing market share, growth and better cash flow. “At the moment, we are focusing mostly on quality. We want to see debt re-financing, strong balance sheets and that the company has established a change that will cause the share price to outperform,” he says.
In the past year, Walker has reduced exposure to overseas investments, particularly in Japan and emerging Asia, where the markets have retrenched. The trust has held a cash weighting of up to 10%, recently reduced to 6%.
Walker says not holding many banks was the most positive factor, while some American holdings such as Fresenius Medical, Ultra Petroleum and Walmart, have also performed well as they benefit from the strength of the dollar.
In the Association of Investment Companies (AIC) Global Growth sector, the fund is ranked 30th in the sector posting a loss of 33.48% over the past year, according to Financial Express. However over three years the performance is better, ranking tenth in the sector.
Peter Walls, the manager of the Unicorn Mastertrust, is impressed with the fund and says the Portfolio trust meets most of the requirements for investors looking to gain global equity exposure in a single portfolio.
Gavin Haynes, the managing director at Whitechurch Securities, is less convinced. He says despite the strong performance of the fund he thinks it is difficult to find a place for it in client portfolios. “The trust is focused on UK equities [about 70%] and has a focused portfolio of around 50 holdings. At the current narrow discount of 6% the trust looks fully valued and it is hard to know where you would hold this in a portfolio and whether to benchmark it against a UK or international peer group.”
Walker has increased exposure to consumer services, particularly to companies that fare better during an economic downturn. Wal-Mart and Morrisons are companies that tend to benefit when consumers trade down and both feature in the portfolio. The portfolio, which is benchmarked against the FTSE All-Share, is split into three segments. At least half is allocated to British equities, best ideas are taken from overseas equities teams and the remainder is invested in private equity.