Fund manager Peter Ewins gives Moneywise’s Helen Knapman the lowdown on F&C Global Smaller Companies Trust – a Moneywise First 50 fund
What is F&C Global Smaller Companies?
The name is the clue – it’s an investment trust that invests in smaller companies listed on the world’s stock markets and aims to provide a one-stop shop for investors. We try to have a diversified portfolio across different markets, sectors and companies so that we deliver a steady return for investors. We also have 47 years of annual dividend growth. This isn’t a high-yielding investment trust but dividend growth is indicative of a healthy portfolio.
Why are your top holdings investments in other funds?
When I took over the investment trust, I looked at the returns we’d been delivering in emerging markets. I found other specialist fund managers in those areas had generated better returns than we had.
So I started to use third party managed funds from around 2006, particularly for Asian funds and I took the same approach in Japan when our in-house Japanese expert left.
Around 21% of the trust is in these funds – of this 21%, 4% is made up of investment trusts with the rest in open-ended funds.
The other 79% of the trust is managed internally and is invested in individual companies in Europe, the UK, and the US. Other global company funds tend only to hold individual companies, so this is a different approach, but it has worked and we’ve done better because of it.
How do you pick the funds and stocks you invest in?
There’s no rocket science to picking funds. I don’t want to be constantly buying and selling funds, but we do change the make-up of funds based on performance and management.
When it comes to company stock picking, three of us pick stocks and we divide the market into sectors. I research financials, engineers, food companies, transport and some other sectors. Over the years, you build up a knowledge base and contacts. We meet a lot of management teams regularly; we interact with analysts; and then we pick a diverse portfolio.
Our style is quality biased – we look to invest where there is a track record of good performance by the company and management team. At the same time, we’re not averse to investing in the cyclical side of the market [buying stocks at the low point in the business cycle and selling at the high point].
We hold around 80 UK companies. We also have a European team with two main idea generators and the same on the US side. We hold about 50 to 60 US companies, while in Europe we’ve got around 40.
How often do you buy and sell?
Purchases plus sales tend to represent about 60% of the size of the fund at the end of the year. That implies around 30% in and 30% out, which is about a three-and-a-half year holding period.
What have you recently bought and sold?
We’ve introduced two new Asian smaller companies funds, one managed by Pinebridge and the other by HSBC. We exited Advance Frontier Markets investment trust as it was moving towards investing in individual companies rather than other funds.
In the UK, we’ve bought Greencore – a convenience food producer for the likes of Marks and Spencer. It has a good track record of growing its business and serving customers well. It made a big acquisition in the US in 2016, which depressed the share price for a while [making it a good opportunity to buy]. We’ve also dropped some companies that have been profitable over the years, but that are now fully valued. These include engineering firms such as Hill & Smith and Bodycote.
In the US, we’ve bought Monro – a tyre, brakes, and motor repair business. It’s had a challenging year, but the valuation is relatively attractive. In Europe, we’ve bought Fluidra – a Spanish fi rm supplying swimming pools with equipment. The market is picking up and it has announced a merger with a US player. In terms of selling, we’ve sold Interpump – an Italian-based engineering company and we’ve bailed out of CTT – a Portuguese postal operator.
What’s been your best and worst investment decision?
Long-term, the best decision has been British property company CLS Holdings, which has been a multibagger [an investment that has risen multiple times the initial investment value]. It’s made sensible acquisitions over the years and has made us a lot of money.
The best recent stock we’ve had is [tonic water company] Fever-Tree – we’ve held it since 2014, but we’ve just sold out of it. The job it’s done in the UK is fantastic, but growth is bound to slow and there have been talks about [rival] Schweppes pushing back. We’ve lost money in a few oil stocks over the years. Bowleven – a Cameroonian gas and oil company – was one of the worst. We thought the process for monetising oil and gas would be easier. We want companies that have existing production.
What’s your top tip for a beginner investor?
Build a diversified portfolio with funds run by teams with a track record of deliverability and competitive fees. If you’re a beginner, build it up over time – regular saving cuts the risk of buying at the top of the market.
To view Moneywise’s First 50 Funds for beginners, visit www.moneywise. co.uk/fi rst-50-funds.
The man behind the fund
Peter Ewins has been with F&C since 1996 and became the lead manager of F&C Global Smaller Companies in August 2005. Prior to this he worked for Municipal Mutual Insurance and Commercial Union Insurance, as well as ESN Pension Management. Peter has a BA (Hons) in Economics & Statistics from the University of Exeter and is a member of the CFA Society of the UK.
F&C Global Smaller Companies key stats
Fund size: £849.4 million
Number of holdings: Around 200(i)
Ongoing charges figure (OCF): 0.84%
Source: F&C Global Smaller Companies’ December 2017 factsheet (i) Source: Fandc.com, 3 January 2018