Launched on 19 March 1868, the original managers set out to offer small investors the chance to share in the opportunities to put their capital to work across the world. Today, 150 years later, the current managers are doing very much the same. From those modest Victorian origins, Foreign & Colonial Investment Trust (F&C for short) now has more than £3.9 billion of assets, the vast majority of which belongs to private investors, just as it did back in 1868.
A history of backing innovation
In its early days, F&C invested in foreign government and company bonds, financing new infrastructures such as railways, in far flung places like the Rocky Mountains of North America, Argentina, Egypt and even Russia. If you looked at the original list of portfolio holdings today, it would be easy to describe it as an emerging markets bond fund.
A journey of investments from the Amazon River of 1868 to that of Amazon.com of the 21st century and beyond.
As the world of global finance evolved, so did F&C’s portfolio, gradually morphing into the highly diversified global equity portfolio that you see in the current report and accounts. The deliberate policy to move with the times has perhaps been the key reason that the trust still exists today. By continuing to evolve with markets and economies, F&C has innovated through time, it serves the investor of today and ensures its relevance for future investors.
Reducing risk with global diversification
In the early days, the managers allocated funds to the new technologies of the day which furthered the growth of the global economy, such as railways. The original portfolio shows a holding in Brazilian bonds, while today some of the largest holdings are in the new technologies of our era, such as Amazon.com and Microsoft, global companies that touch all of our lives and have enabled the economy to continue to grow: a journey of investments from the Amazon River of 1868 to that of Amazon.com of the 21st century and beyond. Of course, as capital values can fall as well as rise, you will still find stalwarts such as BP, Unilever and HSBC in the portfolio, as we are not going to put all our investors’ eggs in the same basket.
Looking forward to serving the next generation of investors
It is difficult to over-emphasise how positive the economic backdrop appears at present. The global economy has very good impetus, there is a synchronised upturn and, importantly, there are no booms (which tend to precede busts), and financial imbalances are modest.
While there are always risks, there are no obvious pre-cursors which would signal an imminent bear market. Nonetheless, it is not a big stretch to expect a rise in volatility (and some periodic drawdowns) from the current historically low levels. 2018, while supported by accelerating earnings growth, will likely see some increased volatility and rising market dispersion as we move through the year. The exceptional return from global equities in 2017 was accompanied by an unusual sense of calm in markets.
It is highly likely that the cycle in the US will extend to the longest in history – into 2019 - and that inflation levels will find a floor and rise modestly. The Fed is set to continue to tighten gradually – barring any shocks – and continue to shrink their balance sheet. Earnings are broadening out and, with growth opportunities similarly widening on a global level, the US dollar may well weaken further.
In 2018, we foresee an environment where the performance of the tech giants accelerates further in response to strong and improving fundamentals. Nonetheless, the fundamental backdrop argues for a better performance from other areas, like banks, who should benefit from rising rates, better growth, and improving profitability.
The fund managers are continuing to run the winners and do not believe that it is time to start de-risking yet. However, 2018 should see further progress in the cycle and this time next year we may be contemplating (or witnessing) some of the warning signs, which will pre-empt a change in stance.
Like our Victorian founders, we strongly believe that investment opportunities can be found around the world. As economies expand at different rates and at different times, new investment opportunities crop up as innovations emerge, and we will continue to look for investment opportunities for the next generation of F&C’s investors.
Simon Cordery
Director, Investment Trust Sales at BMO Global Asset Management, part of the BMO Financial Group (Bank of Montreal), which acquired F&C Investment Management in 2014. BMO Global Asset Management are the fund manager for F&C Investment Trust.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.
