Foreign & Colonial is starting to reduce its exposure to European equities
The Foreign & Colonial Investment Trust is preparing to gear up further and to reduce its exposure to European equities.
In the first half of this year, the trust raised gearing from 5.6% to 9.2%, and Jeremy Tigue, director and head of investment trusts at Foreign & Colonial, said he is willing to increase borrowings again if further opportunities occur.
While greater gearing is a sign of Tigue's confidence in markets in general, this view does not apply to Europe.
Tigue said the trust's biggest mistake over the past six months was over-optimism and exposure to Europe. Due to weak European markets this exposure has now been reduced from 26% to 23%. Tigue said by the end of the year exposure could be at 20%.
He believes global market volatility will continue for the next few months, and the series of interest rate cuts that have been made will act as a stimulus to the market going forward.
For the first half of the year Tigue has taken a positive approach on Japan, and has maintained his 10% exposure in the area. He said: 'We have been right to be optimistic over Japan for the first half of the year but it is now coming to the crunch time for what next to do. While we still remain optimistic, there is still the risk that they will not embrace reform.'
Tigue continues to look at technology and telecoms but feels the time is not right to go back into the area. Instead, the trust's significant holdings remain in oil, of which his largest holding is in Shell, which accounts for 4% of the total portfolio.
Over the six months to 30 June 2001, the NAV per share of the £2.6bn trust fell by 5.8%, equivalent to 5.5% with income added, to 279.7p, compared with its closest two benchmarks the FTSE All-Share, which fell 8.6%, and the World Index, which went down 5.9%. The discount of the trust is currently trading at just over 10%, this has moved back from 13.6% at the end of June.
During the first six months of year the trust bought back 37.5 million shares, 3.5% of the total, at a cost of £99.5m adding 1.29p per share to the NAV. Tigue said that since the trust started this policy in April 1999, it has bought back 10% of its shares, and it will continue with this initiative.
The shareholder base of the company has also slightly shifted over the past six months, with the percentage of retail investors increasing from 63% to 67%. Tigue said that three years ago institutional investors made up 50% of the shareholder base, and 20 years ago they made up 80%.
Tigue said: 'It is hard to say whether this is because of the 'its' campaign, as we have been doing a lot of our own promotional work to coincide with the campaign. However, a lot of the growth in retail shareholders has coincided with the campaign so it has been helpful.'
Tigue said the board of the trust did not vote for the 1.5% compulsory levy to continue the generic 'its' marketing campaign but the money saved from this is being used to promote the trust.
The board has declared an interim dividend of 1p per share, an increase of 5.3% over last year and forecasts a total dividend of at least 3.2p, an increase of 3.2% on 2000.
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