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Sterling weakness and PE drives Foreign & Colonial

Sterling weakness and PE drives Foreign & Colonial

Foreign & Colonial has reaped the benefits of weaker sterling and strong performance from its private equity portfolio despite warning of 'short term challenges' to markets.

The venerable investment trust returned 7.7% over the six months to July, although a bout of risk aversion following Brexit has caused the discount to widen sharply, blowing out to 11.2%

Foreign & Colonial's board said it was on track to deliver its 46th consecutive annual dividend increase, having paid out a final share dividend of 2.7p in 2015.

Chair of the trust Simon Fraser said: ‘Periodic bouts of investor optimism and fear will likely continue to be a feature of markets but, despite short terms challenges, we remain focused on our objective of growing capital and income over the longer term for the benefit of our shareholders.’

‘Another real rise in dividends is planned for 2016.’ He added that given improved revenue the trust should ‘cover our dividend sooner than we had originally expected’.

Foreign & Colonial’s dividend cover currently amounts to 1.46 years on revenue reserves of £78.33 million, according to Association of Investment Companies data.

Manager Paul Niven’s (pictured) emerging markets holdings delivered 25.4% of overall H1 2016 performance, having accounted for an 11.9% slice of the portfolio in June.

In March Niven told Wealth Manager he planned to up PE allocation after seeing strong returns from the sector throughout 2015.

This increased focus has continued to pay off in 2016, with PE holdings generating 13.7% performance with net cash pay out totalling £36 million.

‘While equity markets are no longer significantly undervalued and there remain risks on corporate earnings growth, we continue to see opportunities in global equity markets,’ said Niven.

‘Despite volatile markets, our diversified approach across listed equity and private equity opportunities means that we remain well placed to deliver long-term performance for our shareholders.’

Over the five years to 30 June the trust has returned 71.48% versus a FTSE World return of 76.79%.

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Paul Niven
Paul Niven
25/74 in Mixed Assets - Flexible GBP (Performance over 3 years) Average Total Return: 19.82%
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