Foreign & Colonial Investment Trust
Foreign & Colonial Investment Trust has a reputation for being large, reliable and a little bit dull (although perhaps conservative would be fairer). Yet its history in recent years has been anything but dull.
The original F&C Asset Management, which was quoted and ran the fund, was one of the early targets of Edward Bramson, the American activist investor, who arrived at the start of the decade and succeeded in replacing some of the board with his own people. Mr Bramson stood down as chairman in 2013 and it was sold in 2014 to BMO Asset Management, part of the Bank of Montreal. This has made little difference to the management of the trust. In July of that year, Paul Niven took over the management from the veteran Jeremy Tigue.
F&C has holdings worldwide in 500 companies and in some private equity funds. This might seem to make outperforming its benchmark index quite tricky, but the returns have been good enough, withy an average annual return of 18.2 per cent against 15.6 per cent for the FTSE All-World index.
Meanwhile, the discount to net assets, above 10 per cent three years ago, has been narrowing to 6 per cent or 7 per cent, while there is the facility to manage this by means of share buybacks. The returns would appear to be improving, 9.1 per cent in the first half against 6.3 per cent for that benchmark index.
Mr Niven’s main job is to allocate funds across the different investment strategies. Almost half of the fund is in the United States, where investments are run by two external managers. There is inevitably a heavy bias towards blue-chip technology stocks such as Amazon, Apple and Google owner Alphabet. Several years ago the decision was taken to reduce the proportion of UK stocks held and this is now about 7.5 per cent of the total. The best performers of late have been continental Europe, comprising about 20 per cent of the fund, and emerging markets, about 13 per cent.
The presence of BP among the top ten holdings may seem surprising, because F&C generally eschews commodities and oil and gas. Most of the holding is in the US in ADR form, at the option of one of those external managers.
That European and emerging markets recovery is largely behind the strong share price performance since last year, when the investment trust sector was poorly regarded. For investors, this is among the safest on the market and there is a decent enough dividend income.
The shares were nearly 1 per cent higher during later afternoon trading in London at 605.90p.
MY ADVICE Buy
WHY Foreign & Colonial is ideal for the cautious investor, offering a range of investments and with a good track record in picking them
John Menzies
The deal to combine its distribution business with DX may have failed, but it is a fair bet that at some stage before too long the two quite different businesses within John Menzies will be demerged.
The DX deal was the most attractive way of carrying this out because Menzies would have shed its division that distributes newspapers and magazines and is growing in mail, in return for £40 million in cash and a 65 per cent stake in a larger and stronger group. It wasn’t to be, but the building blocks to an eventual demerger are in place. The legacy pension fund has been split into two parts, each to be assigned proportionately to each operation.
The acquisition for $202 million of the Asig aircraft-refuelling business was completed in February and means that Menzies’ second business — airport services — is spread around the world and now large enough to be self-supporting. The official line is that all methods of splitting the two are being explored, but one, plainly, is having both of them quoted on the stock market.
This would allow a higher rating to be attached to airport services, which is growing along with global aviation, and a lower one to distribution, where supplying magazines and newspapers is in decline and diversification into mail fairly unproved. The probability is that the value of both parts will be higher. Interim figures today should contain few surprises. The shares, up 10p at 713p, have risen by 18 per cent this year but still sell on a relatively modest 13 times earnings.
MY ADVICE Buy
WHY Benefits of demerger when it comes
New River REIT
It is no mean feat to persuade a clutch of banks to lend money to you, on an unsecured basis, at rather less than you are paying on secured loans when your intention is to buy retail assets just as fears grow of a squeeze on consumer spending. New River Reit has also raised £225 million already this summer from equity investors, at a price 15 per cent ahead of net asset value.
The key is that New River has a good record of investing in the sort of regional shopping centres that hold their value, with a wide geographical spread and with tenants that tend to be low-cost retailers selling essentials such as groceries. The company is committed to spending £60 million buying Pimco, the bond trader, out of a joint venture, but there remains plenty of firepower to fund other deals.
The £430 million of new unsecured debt means that New River is paying less than 3 per cent in interest while getting a yield on those assets of more than 8 per cent. Therefore it can afford generous dividend payments to investors, and this is the main appeal of such stocks.
The shares, which have risen from little more than £3 at the end of January, added another 3½p to 343½p. The yield is still above 6 per cent, attractive and reliable.
MY ADVICE Buy
WHY High and near- guaranteed dividend yield
And finally . . .
Greencoat UK Wind is putting down another £105 million for two more wind farms, one in Liverpool Bay and one in Co Tyrone, Northern Ireland. Both enjoy the usual subsidy arrangements. There had been concerns that the supply of such assets might be drying up. Greencoat has invested in 23 farms in the UK. It promises dividends that rise in line with inflation and offfers a good yield. The chances are that, with borrowings now more than 25 per cent of net assets, it will be raising fresh capital again.