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Hewitt backs Barnett to deliver at helm of Edinburgh

F&C’s Peter Hewitt, a man whose job it is to pick good investment trust managers, is backing Mark Barnett to pick up where predecessor Neil Woodford left off at Edinburgh. 

 

by Jennifer Hill on Jul 09, 2014 at 07:00

F&C Managed Portfolio Trust manager Peter Hewitt is sticking with his holdings in Edinburgh Investment Trust (EDIN) despite Neil Woodford’s departure from the helm. The trust, which Mark Barnett assumed control of earlier this year, is the 12th largest position in the Income Portfolio (FMPI ) of F&C Managed Portfolio Trust, a fund of investment trusts launched in April 2008.

The trust has held Edinburgh since inception. Barnett’s Perpetual Income & Growth (PLI ) has also been held in both the Income and Growth (FMPG ) portfolios since launch.

‘I think he will do well with the [Edinburgh] trust,’ Hewitt said of Citywire AA-rated Barnett. ‘He has a very sensible approach to fund management based on cashflow and dividends.

‘The only question is can he handle the additional portfolio? I think Invesco is acutely aware of that and has put a lot of additional resource behind him. I have not seen [any evidence] yet that he is been doing too much and cannot cope. He is a top manager.’

Emerging stars

Hewitt believes other investment trusts stars of the future include Douglas Brodie, who manages Edinburgh Worldwide (EWI ), and John Bennett, who manages the Henderson European Focus Trust (HEFT )

Hewitt added Edinburgh Worldwide, part of the Baillie Gifford stable, to his Growth Portfolio in February when the £214 million trust converted from a global growth investment approached focused on companies of all sizes to one specialising in smaller firms.

‘It plays to Baillie Gifford’s strengths: global mid and small cap growth companies,’ said Hewitt. ‘On a five-to-10 year view, it will be a big outperformer.’

He has held Henderson European Focus, again in his Growth Portfolio, for much longer, since December 2012, but hails Citywire AAA-rated Bennett as a ‘great stock picker’.

Mobius cut

Who, on the other hand, has had their day? Mark Mobius’s Templeton Emerging Markets (TEM ) , according to Hewitt, who held it in his Growth Portfolio since launch but sold it at the start of this year. ‘It is been a laggard in its emerging markets peer group and persistently so; I got a bit fed up with it,’ said  Hewitt.

Despite a rocky road for emerging markets of late, the Growth Portfolio has 15% across emerging markets with holdings including Genesis Emerging Markets (GSS ) and the Income Portfolio 18% through funds like JP Morgan Global Emerging Markets Income (JEMI) and Aberdeen Asian Income (AAIF ).

‘They [emerging markets] started to underperform around 12 to 18 months ago,’ said Hewitt. ‘I have top-sliced some positions, but am sticking with them because of their long-term growth characteristics.’

Trimming medium-sized company funds 

He has trimmed back exposure to medium-sized companies following a stellar run, reducing holdings in funds like Schroder UK Mid Cap (SCP ). ‘Valuations [of medium-sized companies] are a bit extended and over the past three months the FTSE 100 is beginning to outperform [the FTSE 250],’ said Hewitt.

His Growth and Income Portfolios hold at least 25 investment companies each. The Growth Portfolio has 38 holdings at present and the Income Portfolio 36.

They have five holdings in common: Lowland (LWI ), Perpetual Income & Growth, Mercantile (MRC ), Law Debenture (LWDB ) and Murray International (MYI ).

The Growth Portfolio hands income generated to the Income Portfolio, which in turns transfers back capital of the same value. Otherwise, they are run as separate funds.

The Income Portfolio invests in goliaths of the equity income world like Lowland, Temple Bar (TMPL ) and City of London (CTY ). Recent additions to the portfolio include Majedie Investments (MAJE ) and BlackRock World Mining (BRWM ) in February.

The Growth Portfolio has had biases towards technology for the past four years on the strength of the rise in mobile devices and cloud computing - holdings include RCM Technology Trust (RTT ) and Polar Capital Technology (PCT ) - and to biotechnology for almost three years. It has held Biotech Growth (BIOG ) since November 2011 and picked up Worldwide Healthcare (WWH ) at the end of 2013.

‘Genuinely blockbusting drugs are being developed not by big pharmaceuticals companies but by biotech companies,’ said Hewitt. ‘That is what makes it so exciting.’

Investment trust discounts have narrowed to an average of 6%, but discounts do not dictate his stock selection. He does, however, tend not buy if a premium is above 1%.

‘Picking the best managers is the most important thing,’ he said. ‘I always try to buy at the most advantageous price, hopefully at a discount, but it is not going to put me off if a trust has been on a wider discount [than the purchase price].’

Over the past five years the share price of F&C Managed Portfolio Growth is up 84.1% and the net asset value is up 98.4%, while F&C Managed Portfolio Income has risen 93.2% and 105.4% respectively. The FTSE World index is up 95.3% over the same period.

ANALYST VIEW

Kieran Drake, investment trust research analyst Winterflood Securities

Peter Hewitt takes a long-term investment perspective with an emphasis on selecting quality equity fund managers rather than investing in funds on wide discounts.

The investment trust has an innovative structure with two portfolios.

This allows the Income Portfolio to pay an annual dividend equivalent to around 4.1% of net assets, which is split into quarterly payments.

The investment trust also benefits from a strict 5% discount control mechanism with both buyback and issuance powers used actively.

F&C Managed Portfolio has a good performance record, testament to the manager’s emphasis on quality investment trusts. Both share classes should be attractive to investors looking to access the proven ability of investment trusts to outperform over the longer term.

1 comment so far. Why not have your say?

Keith Cobby

Jul 09, 2014 at 09:08

It would now make sense to merge Edinburgh and Perpetual Income & Growth.

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