Foreign & Colonial Investment Trust – 150 Years Young
Head of Investment Company Research
The granddaddy of the investment trust sector, Foreign & Colonial Investment Trust, celebrates its 150th birthday this month.
It is a remarkable achievement for a company to remain relevant over such a long period and it is not the only investment trust hitting the 150 mark this year, the other being The Investment Company; there are 18 investment trusts that were incorporated before 1900 still thriving today.
At the start of 2018, Foreign & Colonial (F&C) was the second largest investment company in the UK with a market cap of £3.5bn, behind Scottish Mortgage (£6.3bn and 108 years old) but ahead of RIT Capital Partners (£3.0bn and almost 30 years old).
When I joined the City in 1984, F&C was managed by Michael Hart; he managed the fund from 1969 to 1997, handing the reins to Jeremy Tigue who managed the fund for 17 years before handing over to the current manager, Paul Niven.
In a world where investors seem to be obsessed by short-term noise, it seems somehow comforting that the trust has had just three managers in almost 50 years.
As I write, markets are having a wobble, some planned new issues have been pulled, some open-ended funds are seeing outflows, but the investment trust industry’s great strength is that it can look beyond the panic.
Selling pressure may lead temporarily to widening discounts but these companies can hang onto their capital, take a long-term view and even borrow more to invest if they feel that it is right.
Michael Hart did that in the midst of the 1974 market crash and the trust was rewarded handsomely; he is also credited with the introduction of investment trust savings schemes, which encouraged individual investors to buy and hold investment companies in increasing numbers.
That helped lay the foundation for the happy situation that we find ourselves in today where individual investors hold the majority of shares in trusts such as F&C; 45% of its share capital is held through its savings schemes and many more shares are held by individuals through other investment platforms.
Individual investors increased their holdings in F&C initially at the expense of institutional investors and later the larger wealth managers that used investment trusts as a way of getting exposure to overseas markets for their clients.
During 1980s, ‘90s and ‘00s they became more sophisticated and wanted to invest overseas directly or via specialist funds; Global generalist trusts such as F&C were seen as old fashioned and a perceived overhang of stock meant that their discounts widened heralding a time of introspection and reinvention for many trusts, Foreign & Colonial included.
It might be surprising to learn, given the relatively conservative nature of Foreign & Colonial today (it remains one of the most diversified global generalist investment trusts), that it started life as an emerging market debt fund.
Its initial investments were government bonds issued by countries such as Chile, Argentina and Russia. Two years later it started diversifying into railway bonds but it was some time before it made its first equity investment.
Today, Foreign & Colonial benchmarks itself against the FTSE All World Index; prior to 2013 it used a composite comprising 60% of the FTSE World ex UK Index and 40% the FTSE All-Share Index.
This benchmark change, is one indicator of the way that F&C has been evolving in recent years; in 2017 it delivered a share price total return of 21% against its benchmark of 13.8% and delivered its 47th year of increasing dividend.
It has recently increased its exposure to overseas stock markets at the expense of the UK, which gives it more opportunity to find the companies that will power its performance over the next 150 years; it will henceforth be officially known as F&C Investment Trust to ‘ensure its relevance in the modern world’.