Martin Currie Portfolio's performance is being diluted by its 10% holding in the group's private equ...
Martin Currie Portfolio's performance is being diluted by its 10% holding in the group's private equity trust Capital Return.
Since Portfolio was launched in March 1999 following the reconstruction of Scottish Eastern, the trust has outperformed its benchmark the FTSE All-Share. To 31 March 2000 the trust has risen by 17.15% in NAV terms compared to a rise in the benchmark of 11.93%. However, by excluding the trust's holding in Capital Return its performance is even better, rising by 20.76%.
Capital Return is invested in the unlisted portfolio which was formerly part of Scottish Eastern. Capital Return is trading on a discount to NAV of around 28%. Within Portfolio it is valued on its share price, as valuing private equities on an NAV basis is too difficult.
Tom Walker, manager of the £393m Martin Currie Portfolio, is unconcerned about the performance dilution Capital Return is having on the trust.
He said: "I regard our position in Capital Return as a long-term holding. Its funds have been invested wisely and Portfolio will receive the first capital payments from realisations in two years time."
Despite the performance of the trust since it was launched its share price is currently trading on a discount to NAV of 17.6%. Walker said the discount was a problem and the trust was buying back shares to narrow it. He added due to an unusual feature of the Martin Currie Portfolio, the level of the discount could be seen as an attraction.
One reason why Scottish Eastern was wound up was shareholder concern about the wide discount to NAV. Before rolling over their investments in the Portfolio trust shareholders wanted guarantees the problems they experienced with Scottish Eastern would not happen again.
It was decided Portfolio would buyback any shares at NAV at five yearly intervals starting in 2004. This means investors buying shares now will receive 17.6% uplift if the share price and NAV remain unchanged until 2004.
Since the trust's launch its overseas exposure has been the driving force behind its performance. Between 22 March 1999 and 31 March 2000 the trust's overseas exposure rose by 61.65% against a rise in the FTSE World (ex UK) Index of 26.18%.
This was mainly down to being overweight tech, media and telecom stocks, according to Walker. The trust's UK performance lagged behind due to the lack of UK technology stocks held within the portfolio. Since its launch the UK portfolio has risen by 4.7% compared to the FTSE All-Share which has advanced by 11.93%.
Initially it was decided to invest 70% of the portfolio in the UK, 20% overseas and 10% in private equity Martin Currie Capital Return. Currently Walker is underweight both the UK and US.
His stance on the UK is purely one of opportunity cost, believing it would be more beneficial for the trust to be overweight Japan and Far East.
In the US Walker is concerned about the consumer. He said: "Interest rates are likely to be raised. Currently consumers have the highest debt margins than ever before so any interest rate rise will have a negative affect on them."
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