New Star’s share price nosedived last week after it issued a profit warning following a £1.6bn loss in the second half of 2007.
The share price fell as low as 82p on Friday, after closing at 147p the night before, as the credit squeeze and downturn in the UK commercial property market forced the firm to slash its final dividend to 5p. The stock had recovered to around the 106p level on Tuesday but the company’s share price has fallen by around 75 per cent in the last six monthsThe company’s trading statement said: “New Star’s European mutual funds and some of its UK mutual funds were badly positioned for the combination of the credit squeeze and high natural resource prices experienced in the second half of 2007.
“As a consequence, the majority of New Star’s UK and European equity mutual funds significantly underperformed their peers. In addition, New Star suffered from the sharp downturn in the UK commercial property market.”
Investors withdrew £500m from the firm’s funds between June and December while the £1.5bn UK property unit trust had outflows of £300m in the same period.
Executive chairman John Duffield is expected to make fund manager changes, particularly on the UK desk where he has announced plans to merge James Ridge-well’s UK special situations fund into Tim Steer’s UK alpha fund.
Investors will be concerned by the firm’s pessimistic outlook for 2008, with outflows expected in the first six months of the year.
Duffield says: “We have a number of issues to address. We are committed to doing whatever necessary to address problems we have exper-ienced with investment performance in certain products.”
Chelsea Financial Services managing director Darius McDermott says: “The fact that New Star has had a difficult year is not in question but for investors much depends on the funds you are involved with. It is up to Duffield to make the appropriate changes and his track record tells you to have faith in what he does.”