3i european technology trust steps up exposure to semi-conductors and internet stocks
Pierre-Andre Boutin, manager of the £42m 3i European Technology Trust, has shifted out of large-cap stocks and cut a number of holdings in the portfolio since taking the helm last November.
At its inception in 2000 the portfolio was some £330m but has since shrunk dramatically due to a combination of unfavourable stock selection and the general decline in the tech sector, according to Boutin.
The trust's NAV has declined by 87% over the three years to 13 June and by 31% over 12 months to the same date.
'On the European side it had names like Philips, which was fine when the fund was bigger but needed to be trimmed back as the purpose of the portfolio is to invest in small and mid-size companies,' he said.
Boutin, previously manager of the Close Finsbury Eurotech investment trust, took over the fund from Mike Prentis who is now running the 3i Smaller Quoted Companies trust.
To the end of February, the most recent publicly-available figures, Boutin had sold out of 21 stocks and bought nine since taking over, reducing the number of holdings from 77 to 65.
He said he wanted to reduce the number further, to 60, with a long-term goal of holding 60-70 stocks.
'There are still some smaller holdings I could do without. In percentage terms they are not very important but it is about priorities. Where we have conviction we should have a higher weighting in the stock,' he said.
Boutin is seeking out stocks with barriers to entry from competitors, such as solid distribution agreements.
He has been increasing exposure to semi-conductors over the past three months, with the area accounting for around 22% of the portfolio at the end of April. Internet stocks, which were only 1%-2% of assets when he took over, now make up around 11%. These last additions were initially in internet service providers but Boutin is now looking at content providers and e-commerce players as well.
The trust is completely ungeared with 5% cash and Boutin has removed its £17.5m variable-rate borrowing facility until he is happy with the portfolio positioning.
'I told the board I was happy to cancel the gearing facility until the fund was restructured because it was a distraction,' he added. The manager and the board are considering a new gearing structure to be bolted on in coming quarters but Boutin said it is likely to be much smaller than the previous facility, which was set up at the trust's inception
Boutin added: 'Against its index the fund's performance is nothing to blush about but it has not done as well as some other funds because it was not in Europe and had a bias to smaller and mid cap stocks while large caps have outperformed in recent years.
He believes small and mid-cap names are now set for a comeback, and more recent performance figures are encouraging. NAV has grown by 18% over the six months to 13 June and by 42% over three months to the same date.
'In the past two quarters small and mid-caps have met the market's expectations and I would attribute that to cost savings they have made in the last 18 months. I also take comfort from the amount of merger and acquisition activity we are seeing in the sector. These are signs that stocks are no longer too expensive,' he said.
The trust was trading at a discount to NAV of 16.8% on 13 June, against a Specialist Technology sector weighted average discount of 11.0%.
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