Foreign & Colonial Investment Trust raises dividend
Foreign & Colonial Investment Trust (FCIT), the world's oldest collective investment fund, has increased its dividend to investors for the 40th year in a row, it reveals in its annual results for the year ended 31 December 2010, released to the London Stock Exchange today.
FCIT, managed by Jeremy Tigue at F&C Investments, posted a net asset value total return of 15.8% for the year, in line with its benchmark index, a composite of 40% FTSE All-Share and 60% FTSE All World ex-UK.
The Board has increased the dividend by 1.5% to 6.75p a share, with the final dividend of 3.75p payable on 9 May 2011 in addition to the 3p already paid in September 2010. The increase comes in spite of a reduction in income of £2.3m or just under 5% as a result of BP's suspension of its dividend following the Gulf of Mexico oil spill.
FCIT's healthy revenue reserve has enabled the Board to maintain the long history of dividend increases. Since 1970 the dividend has increased more than 60-fold, far ahead of the increase in retail prices. After the payment of the final dividend the revenue reserve will total £88m, or more than twice the cost of the annual dividend.
Performance drivers
At the half-yearly results in July 2010, Chairman Simon Fraser said the Board and manager felt the opportunities in the market were greater than the threats, a position that was vindicated during the second half of the year.
The manager increased the level of gearing during the year, from 6.2% to 13.2% at the year-end, which contributed positively to performance, as did share buybacks driven by FCIT's policy of keeping its discount to net asset value at no more than 10%.
The Company's relatively high allocations to emerging markets, Developed Asia and private equity (which between them accounted for almost a third of the £2.3bn trust's portfolio) produced the strongest contribution to performance in 2010. The private equity portfolio in particular is recovering well after a difficult spell since the onset of the financial crisis in 2008.
In January 2011 Jeremy Tigue reduced FCIT's exposure to Developed Asia (an emerging markets proxy) to zero. This brings total emerging markets exposure to 11%, below the Company's long-term target of 15%. Tigue had for some time said that the easy money had been made in emerging markets, and the reduction in exposure has proved well timed, as emerging markets have fallen significantly since the onset of political turmoil in the Middle East. Tigue said: "While emerging markets are still a positive story over the long term, we feel it is too early to buy back in just yet."
Fees and the future
The Board and F&C have agreed a new fee structure that aligns the interests of the manager with the shareholders. The performance fee has been removed and F&C's remuneration will now be dictated by the market capitalisation of FCIT, meaning that a rising share price will reward both investors and management. Foreign & Colonial Investment Trust had a total expense ratio of 0.54% in 2010, well below the 0.98% average for Global Growth investment trusts (according to 2010 AIC figures), which is itself lower than the TERs on most actively managed open-ended funds. The new fee, applied from the start of 2011, will be equivalent to 0.365% per annum of market capitalisation of the Company, calculated and paid monthly.
Foreign & Colonial Investment Trust is overwhelmingly owned by retail investors, who make up 86% of the share register, with 43.9% investing through F&C's own savings plans. Jeremy Tigue says FCIT is very well placed to benefit under the Retail Distribution Review, as its size, long history, low costs and global diversification are likely to be attractive to independent financial advisers making their first forays into the investment trust market.
FCIT Chairman Simon Fraser, who took up his position after the AGM in May 2010, said of the outlook for markets and the Company: "The prospects for individual companies are generally positive. Profits and dividends are growing at a healthy rate across the world and outside the financial sector balance sheets are generally strong. We expect this will translate into increased takeover activity in 2011 which will help investor sentiment. This could be particularly important for the private equity industry, which is under growing pressure to generate cash returns for investors. We expect our own private equity portfolio to perform strongly in the first part of 2011 as valuations catch up with the recent rise in listed markets.
"Despite the many uncertainties we are encouraged by the earnings performance and valuations of the companies we own. We are confident that our well diversified global equity portfolio will achieve our objective of capital and income growth."
New directors
On 2 March 2011, Sarah Arkle and Nicholas Moakes joined the Board of Foreign & Colonial Investment Trust as non-executive directors. Ms Arkle is the former Chief Investment Officer of Threadneedle Asset Management and remains Vice-Chairman of Threadneedle, while Mr Moakes is Head of Public Markets at Wellcome Trust and was formerly an Asia and emerging markets specialist at BlackRock Investment Management.