F&C IT lags peers

Foreign & Colonial Investment Trust, the UK’s oldest investment company, said its exposure to private equity caused it to underperform its peers in 2009, as it reported a 21.3 per cent rise in net asset value for the year.

The £1.8bn investment company was also forced to dip into its revenue reserves after earnings per share fell 23 per cent. The annual dividend will be 6.65p, up 3 per cent on 2008.

The rise in the value of its assets followed a 27 per cent fall in 2008, but was still less than the benchmark and those of other global growth investment trusts last year, at 23.4 per cent and 27.9 per cent respectively.

Mark Loveday, chairman, said a 13.1 per cent fall in the value of the private equity portfolio was the main reason for the underperformance. However, he said he expected the private equity holdings to perform better in 2010.

F&C IT’s allocation to private equity, at 15 per cent of the portfolio, makes it unusual among other global investment trust giants. The only one of its rivals to move into private equity has been Alliance Trust, which is now reducing its exposure in favour of global equities.

The board also dropped Goldman Sachs as the manager of its £100m Japan portfolio after a period of underperformance, moving the management in-house in January.

Jeremy Tigue, fund manager of F&C IT, said that Japan had been “a graveyard for investors” over the past 20 years but said the company was keen to spot opportunities when they arose, hence the move away from Goldman Sachs’ automated approach.

Unlike rival Witan, which has outsourced all its investment management to local fund managers around the world, F&C IT has only dipped a toe in the water of multi-management. Simon Elliott, analyst at Wins, said the strategy had met with “mixed success”.

Mr Tigue said that he expected the recent shift in volatility from the equity markets to the currency markets to continue this year. The company has moved short-term borrowings to sterling and geared its UK portfolio towards overseas earners as a result.

F&C IT is frequently used by investors as a haven at volatile times, with demand for shares rising when markets are unstable. The company spent six months of 2009 in the FTSE 100 before being relegated in September. The discount of shares to net asset value in the company has since widened as investors moved into riskier assets.

The discount is currently 11 per cent, in line with the policy to keep it about 10 per cent.