Fund managers hit by Carillion's collapse

[richfool]

I was interested to see this on Citywire, (dated 15th January) about trusts and funds holding Carillion before its demise:

"Fund managers had been dumping Carillion's stock in their droves last year, but some were still hit by today's collapse."

Carillion's (CLLN) well-publicised problems had sparked fund managers to dump the stock in droves, but not all managed to escape today's collapse into liquidation.

Fund ownership data from Reuters shows few active managers were prepared to hold a sizeable stake in the troubled construction group's shares.

The number of 'tracker' funds and exchange-traded funds, which aim to replicate the performance of a particular index , that appear among the company's top investors is testament to how far out of favour the stock had fallen among active fund managers.

Among those who had clung on to the stock are James Henderson and Laura Foll, who held the company in their Law Debenture (LWDB) and Lowland (LWI ) Investment Trusts.

The article goes on to discuss a number of other funds which had disposed of their holdings over the preceding year.

http://citywire.co.uk/money/the-fund-ma ... e/a1083709

[Lootman]

The number of 'tracker' funds and exchange-traded funds, which aim to replicate the performance of a particular index , that appear among the company's top investors is testament to how far out of favour the stock had fallen among active fund managers.

That doesn't make much sense to me. Since a tracker will only hold a share in proportion to its market cap, as a share declines in the way that Carillion did, its weight in an index fund will decline correspondingly. So when it went bust, the residual holding in an index fund would have been small, and so the hit would be minor.

Obviously there was a loss of value as the share price declined, as with any share that declines. But the actual loss due to the bankruptcy itself would not have been significant. And of course the thing with index funds is that it will also hold the shares that enjoyed corresponding price appreciation over the same period. That's sort of the point of index funds - to immunise you from buying the "wrong" share.

The biggest loses would accrue to value, recovery and income funds and investors that bet on a turnaround or bought it "because of the yield". Hence the howls of anguish about this on the NY boards.

If index fund positions look large, it is surely because some index funds are enormous and so every position is large in purely monetary terms. But it's the percentage position that counts.

[Alaric]

Since a tracker will only hold a share in proportion to its market cap, as a share declines in the way that Carillion did, its weight in an index fund will decline correspondingly.

Index weights are calculated quarterly as far as I am aware, so the latest loss would have been from the last review. It would have been loss making for the index funds from when it started its collapse.

If a share represents 1% of an index and then halves in value, the holders are nursing a loss of 1/2% of their aggregate value. If it's then thrown out of the index, they become compulsory sellers, again at the depressed price.

[richfool]

It was interesting to note at what point various fund managers had sold their holdings, a point which I thought might be of interest to HYP'ers. Several (fund managers) had disposed of their holdings after the July profit warning.

[Lootman]

Since a tracker will only hold a share in proportion to its market cap, as a share declines in the way that Carillion did, its weight in an index fund will decline correspondingly.

Index weights are calculated quarterly as far as I am aware, so the latest loss would have been from the last review. It would have been loss making for the index funds from when it started its collapse.

If a share represents 1% of an index and then halves in value, the holders are nursing a loss of 1/2% of their aggregate value. If it's then thrown out of the index, they become compulsory sellers, again at the depressed price.

Yes and no. As the value of any share declines then its percentage allocation in an index fund also declines. That happens as a result of market moves real time and not because of conscious trading decisions. In fact an index fund never trades except for monies in and out, corporate actions and index changes.

[OhNoNotimAgain]

Citywire's business model depends on commenting on active funds so it takes any opportunity it can to attack passive funds.
Its performance tables do not even include passive funds.

[richfool]

An article from Investor's Chronicle: "Infrastructure ITs don't expect Carillion failure to hit dividends".

HICL Infrastructure Company (HICL), John Laing Infrastructure (JLIF) and International Public Partnerships (INPP) have released estimates of the effect that the collapse of Carillion (CLLN) will have on their net asset values (NAV). Carillion provided services for some of the projects they invested in and under the public private partnership (PPP) contractual framework, facilities management counterparty risk is transferred from the public sector to private sector.

https://www.investorschronicle.co.uk/fu ... dividends/