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F&C boosted by positive returns

The outlook for fund management firm F&C has improved in the past couple of weeks with the publication of two positive sets of results.

F&C’s future has been up in the air since parent company Friends Provident announced its intention to sell its 52 per cent stake in the firm last summer.

However, positive returns from the Foreign and Colonial investment trust and the group as a whole have reaffirmed its position as one of the leading players in the asset management market.

F&C has felt the impact of the financial uncertainty, with assets under manage-ment falling from £104.1bn to £103.6bn, while its operating margin fell from 36.5 per cent a year to 31 per cent, due to the increased expenditure to add new managers, funds and systems to the business.

However, net sales of retail funds rose by 28 per cent, a considerable about turn from a 38 per cent decline in the industry as a whole, and the firm also announced a rise of 119 per cent in performance fees, from £9.5m to £20.8m.

The consensus analyst forecast for F&C’s underlying earnings per share was 9.5p, while it actually delivered 10.4p.

The positive news comes only a year after F&C unveiled an eight-point initiative to turn around the business, a move that was highlighted for negative reasons in the press at the time because of the group’s intention to slash dividend.

Shares in the firm plummeted by as much as 24 per cent after the announcement, which also revealed that F&C had haemorrhaged 20 per cent of its assets during 2006.

One year on and F&C chief executive Alain Grisay says the first year of the strategy had delivered beyond expectations.

He says: “We have successfully completed the first year of our plans and have done what we set out to do in terms of delivering strong investment performance across a broad range of products – attracting new talent, enhancing our product range and upgrading systems. In 2008, our initiatives are focused on distribution.

“Clearly, the current market environment is much more challenging and compounded for us by the corporate uncertainty that began last summer. While these factors mean that the time line of delivery depends on how quickly these factors stabilise, we have put all the cornerstone investments in place. We have exceeded our financial targets for the first year, and we remain fully committed to the overall strategic directions set out last year.”

Grisay is particularly pleased with the performance of the UK retail business.

He says: “Fourteen of our mutual funds, representing a third of our range, achieved top quartile performance last year and recent research published by Citigroup and Lipper suggests F&C is well positioned in terms of mutual funds performance against our peers over the 12 months to the end of January.

“So far in 2008, our UK retail sales exceed those in the same period last year.”

One of the initiatives launched in 2007 was the multi-manager lifestyle funds. The products link into the asset allocation models set up by Dynamic Planner.

The group recently announced a new distrib-ution deal with Clarkson Hill, the Aim-listed IFA firm for the funds.

As part of its results, the group also revealed that 69 per cent of its investment trust’s assets outperformed last year, including the Foreign & Colonial investment trust.

The trust announced a rise of 13.6 per cent in net asset value in its 2007 results. There was also a 10.4 per cent rise in annual dividends per share to 5.85p and a 12 per cent increase in share price to 318.75p.

Chairman Mark Loveday says the group delivered on all four objectives in 2007, having seen the trust beat its benchmark and close peer group, while also developing its private equity strategy and increasing dividend faster than the rate of inflation.

He says: “We expected 2007 to be a volatile year, but the problems in the US sub-prime mortgage market and the resulting credit crunch were worse than we had anticipated.

“After a strong performance from most markets in the first half of the year, conditions were far more difficult from July onwards.”

A cloud still hangs over F&C with the reminder by the director of the £2.3bn Foreign and Colonial investment trust that it has the option to quit from the group should it not be satisfied with the arrangements between F&C and parent Friends Provident.

While record business returns are being recorded the future of the firm is still up in the air. Advisers are confused on whether the future will be as rosy given the potential for mergers and manager changes.

Wilson Dean Financial Services director Nick Lincoln says: “Any money we would put with F&C is, and would continue to be, done so regardless of talks on the sale of the business, the same applies to New Star and rumours of them going private.

“We like the F&C multi-manager franchise under Richard Philbin as well as some of their bond team and will continue to invest as we see fit.”

Hargreaves Lansdown investment manager Ben Yearsley believes there are a number of issues that cannot be overlooked at the firm.

He says: “Obviously the ownership issue looms large but I feel performance has been OK, rather than shooting the lights out.

“They lost two big up and comers in Luke Newman and Makis Kaketsis recently and Ted Scott aside, there is not masses for advisers to be excited about.”

Informed Choice director Martin Bamford says: “One fact we have to look at is the stability of a firm before selecting one of its funds but I would have no concerns over F&C given the strength of the brand and its position in the market.”

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