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Financial Times: Ted Scott F&C Stewardship Growth Fund

EXTRACT: What was your worst investment decision?

I held on to BP and Shell for too long last year. Like a lot of people I thought that the share prices of oil companies would reflect the high oil prices and would result in an upgrade of earnings estimates and cash to shareholders, but that hasn’t really happened.

Both companies have had well-publicised problems and both underperformed. Other stocks in the sector have done quite well in the same period but I underestimated how difficult it is for large oil companies to replace their reserves. High oil prices don’t mean they can necessarily find more oil and put it into the market.

I did eventually halve my position in the companies in the third and fourth quarter of last year and they have fallen more since then. In fact they have fallen so much that I am considering buying them again.

THE ARTICLE

By Elaine Moore
Published: March 3 2007 02:00 | Last updated: March 3 2007 02:00

Ted Scott joined F&C in 1984, the same year it launched the UK’s first ethical fund, the £874m Stewardship Growth Fund. Last year the fund returned 22.7 per cent for investors. Scott manages this fund, the Stewardship Income Fund, which was launched in 1997 and the £80m UK Equity Growth and Income Fund.

How would you describe your investment style?

I am more value than growth-orientated. I look for contrarian stock but I am also pragmatic. In my portfolios there are some highly-rated stocks that have done well such as Autonomy, which makes business software. I purchased it after the correction in May. It was £3.70 then and it’s now around £7.

Since I came into the firm I have been involved in the Stewardship funds and became the lead fund manager in 2000. Running a Stewardship fund means you have to be disciplined. They are categorised as “dark green” – meaning we cannot invest in “unethical” sectors such as oil or large banks. On a market cap basis that means around 70 per cent of the market is off limits. So you have to be focused and look at the market in a different light.

What is your outlook for the sector?

I think the outlook for the ethical sector has never been more positive. In the past 18 months there has been a lot of publicity about ethical factors, in particular climate change. At the moment it’s probably one of the most important global political issues. Ethical funds that don’t invest in sectors such as mining are benefiting from this.

We also look at corporate governance, which has become an issue since companies such as Enron and WorldCom created scandals and led to a lot of people losing money. We take a proactive stance and if a company does something controversial then we try to persuade it to change.

Companies are definitely more receptive to this than they have been in the past. Tesco is a good example – we hold in it the fund, which has been a controversial decision and attracted a lot of attention. We work very closely with it and its awareness of the importance of these issues is already in evidence in their stores.

What was your best investment decision?

The Workspace Group is a company I’ve held for years in the Stewardship Growth Fund. It’s gone up many, many times. It’s run by Harry Platt and provides accommodation for small and medium-sized enterprises mainly in south London. Because it offers space in less salubrious areas it is a niche operation. We bought it first in the 1990s and 10 years ago it was around 20p. It’s now over £5 so it’s been a great investment.

And your worst?

I held on to BP and Shell for too long last year. Like a lot of people I thought that the share prices of oil companies would reflect the high oil prices and would result in an upgrade of earnings estimates and cash to shareholders, but that hasn’t really happened.

Both companies have had well-publicised problems and both underperformed. Other stocks in the sector have done quite well in the same period but I underestimated how difficult it is for large oil companies to replace their reserves. High oil prices don’t mean they can necessarily find more oil and put it into the market.

I did eventually halve my position in the companies in the third and fourth quarter of last year and they have fallen more since then. In fact they have fallen so much that I am considering buying them again.

What is your current top tip?

I think that in 2007 the pharmaceutical sector will do well. The sector has had slower growth recently than in the 1990s and there have been problems in the US getting drugs approved. But the industry is stabilising now and sometimes a lack of bad news can improve a company’s rating as much as good news. Companies such as AstraZeneca and GlaxoSmithKlein have both had good sector figures and beaten market expectations. Both are aware that growth is slower than it used to be and AstraZeneca in particular has been cutting costs and trying to increase leverage and return cash to shareholders.

Copyright The Financial Times Limited 2007

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