Interim Management Statement

RNS Number : 9627L

Foreign & Colonial Eurotrust PLC

20 January 2009

 



Date:          20 January 2009

Contact:    Peter Jarvis    

                    F&C Management Limited    

                    020 7628 8000    

Foreign & Colonial Eurotrust PLC

Interim Management Statement

for the quarter ended 31 December 2008

Objective

The objective of the Company is to achieve long-term growth through a diversified portfolio of Continental European securities.

Summary of results

Capital return Attributable to equity shareholders	31 December 2008	30 September 2008	% Change
Net assets	£255.74m	£292.38m	-12.5
Net asset value ('NAV') per share	530.21p	599.36p	-11.5
Share price	460.00p	518.00p	-11.2

Manager's review

Performance

Your Company's NAV per share (adjusted to reflect the dividends of 14.9 pence per share paid on 22 December 2008) fell by 9.3% during the quarter ended 31 December 2008, compared with a fall of 2.5% in the FTSE World Europe Index, excluding the UK and adjusted to sterling (the 'Benchmark'). The Company's share price fell by 11.2% from 518.00p to 460.00p. The discount narrowed slightly from 13.6% to 13.2%. During the quarter the Company bought back and cancelled 548,435 shares at a cost of £2,382,000. 

Review of markets

The European equity market backdrop remains difficult as 2009 begins. Recent weeks have witnessed the escalating impact of the credit crisis on the wider economy. There has been a further sharp deterioration in confidence indicators across the board. The Euroland manufacturing Purchasing Managers Index for November came in at 35.6, which is yet another historical low for the series. This bleak macro backdrop has prompted an aggressive policy response with the ECB cutting rates by a further 75 bps at their meeting on 4 December 2008.  Additionally, the ECB cut rates by a further 50 bps to 2% on 15 January 2009.  

On the corporate front, the last few weeks have seen a plethora of profit warnings reflecting the challenging operating conditions.  The strong Euro is not too much of a concern in the short-term but will damage the export-driven German economy should the situation persist.  

At the market level, risk premia are at extreme highs, which has driven valuations to extreme lows. The ongoing effects of credit contraction and lack of liquidity have led to high levels of volatility.

On a positive front, the dividend yield for the market is now higher than at any point over the past 20 years. Admittedly, going forward, dividend cuts are likely to be much larger over this cycle, particularly in the banks sector.

Further market support should be gained from the global fiscal policy response, such as Sarkozy's pledge to assist the auto industry in France. However, credit markets remain a concern and will continue to do so until a semblance of stability is evident and spreads have narrowed. Elsewhere, commodity headwinds have diminished, offering some respite to pressures over the last year. The inflationary backdrop is more supportive, which should allow governments and policy makers to be more aggressive with monetary policy.  

Portfolio strategy

Turnover during the last quarter has been driven by ensuring we are invested in companies with high quality business models that exhibit solid, long-term growth prospects and are not highly dependent on external funding. We are overweight intellectual property businesses and companies driven by innovation (publishing, healthcare and Software). The portfolio is underweight 'safety assets' with stable cash flows but long-term no growth prospects (utilities and infrastructure). Finally, we believe that companies with good exposure to emerging market consumers will be good long-term investments.

Outlook

The catalyst for the recovery period will be the return of normal functionality in credit markets. Despite the fact that there have been huge capital inflows from both government and market sources, confidence is still lacking amongst banks.  

2009 will undoubtedly be difficult and we anticipate market strength will be scarce until banks regain the confidence necessary to begin lending again and investors finally see an end to volatility. Once US consumer spending resumes and their housing market stabilises, we anticipate some headway in European markets can be made. 

Peter Jarvis

Manager

20 January 2009

Ten largest equity holdings at 31 December 2008
31 December	30 September	Company	Sector (Country)	% of total
2008	2008			investments
1	1	Novartis	Pharmaceuticals & biotechnology (Switzerland)	4.6
2	-	Total	Oil & gas producers (France)	4.1
3	2	F-Secure	Software & computer services (Finland)	3.5
4	37	Wolters Kluwer	Media (Netherlands)	3.5
5	-	Siemens	Industrial (Germany)	3.3
6	-	Vivendi	Media (France)	3.0
7	-	UBS	Banks (Switzerland)	2.7
8	15	Zurich Financial	Non-life insurance (Switzerland)	2.6
9	16	Hellenic Exchanges	General financial (Greece)	2.6
10	-	ING Groep	Financial services (Netherlands)	2.5
			Total	32.4

Industrial classification of investments

	31 December 2008 % of total investments	30 September 2008 % of total investments
Financials	21.3	24.4
Industrials	20.9	12.5
Technology	12.4	9.2
Oil & gas	11.1	10.9
Consumer goods	8.3	10.7
Consumer services	8.2	5.7
Healthcare	7.5	7.6
Telecommunications	6.0	6.1
Utilities	2.6	8.1
Basic materials	1.7	4.8

Further Information

Further information, including monthly factsheets and daily net asset values published since the end of the quarter, can be found on the www.foreignandcolonialeurotrust.com website.

The Board is not aware of any significant events or transactions that have occurred between 31 December 2008 and the date of publication of this statement which would have a material impact on the financial position of the Company.  

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

20 January 2009

 

END

 

 

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