"After 150 years in the investment game, Foreign & Colonial knows a thing or two about generating returns for investors. F&C fund manager Paul Niven answers our questions.Has the investment strategy changed in recent years?In 2013, we decided to ..."
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Can anyone explain why in these days of low interest rates and in the case of FRCL, a high discount of SP to NAV, the level of gearing at 0.2% is so low.
Surely there is case for gearing up to a level similar to the discount ?
Is it any wonder FRCL has under-performed its benchmark. If money can be borrowed at a little over 3% as stated in the accounts, where is the appetite for risk ? If they can't feel comfortable in making above 3% returns what are they doing running this IT ?
The fact that the peer group is similarly nonperforming is absolutely no consolation.
"A panel of investment experts explores the complex web of economic and political developments likely to determine the fortunes of European and US equity markets in 2016.EuropeEuropean markets are "like a fretful spaniel puppy: they take fright ..."
Seems so. I have had words with an F&C compliance gentleman a while back.
Axel jnr Child Trust Fund with F&C had 4 shares bought at 449.5 on 5th May by F&C by his financial manager (F&C).. But that includes stamp duty, so 447.5 per share - no idea what the broker charged for commission or even if one was involved. - F&C Inv Trust plc is buying shares and holding them in treasury to be sold for at least a premium. One hopes that folks like Axel jnr as a shareholder of F&C Inv Trust, and with his money managed by F&C would get a great deal and not too many financial intermediaries would skim.....
The mid market price on 5th May according to the chart was 441 - so yup someone has skimmed (as well as the Government stamp)....
It's amazing how F&C's timing gets it just right so that reinvestment of my Divi and monthly subscription are at top of the market - £4.47 & £4.50 this month! Is this the same for all the 'small people'?
I agree SH - it is very frustrating that such a discount is applied to FRCL and hard to understand - I am assuming it is because market sentiment does not have that much faith in the prospects for FRCL. Although this must have changed when the discount narrowed but is now back to 8-10%? There are many trusts that trade at a premium - e.g Scottish Mortgage - I assume this is driven by demand as a result of future performance expectations. The trick must be to sell when the discount narrows.
Whilst its lovely to have this dialogue with you, I think you have missed my point. I was comparing the performance of Witan with FRCL. Witan is a similar IT (albeit smaller) and they trade without a discount, which FRCL did for a while, but have reverted. The SP has not dropped by 10%, but nor has it reflected the rise in NAV.
This doesn't matter much if you are continuing to invest, but the market view of the two ITs obviously is that Witan's investment strategy is stronger than FRCLs and is expecting returns to be higher. I don't believe that is a satisfactory position for existing investors in FRCL - although we should be glad we are not Alliance !
As for the point about buy-backs - in the six years between 1/1/08 - 31/12/13 - FRCL has bought back and cancelled 20% of its shares by volume. Why ? because each 90p was converted into £1 of shareholder value and reduced the pool of shares for dividend payout i.e. the earnings were divided by a smaller number of shares hence a rising dividend payout. You would do that when a) the discount was high and b) when you couldn't earn the same return in the market.
The rise in NAV seems to support a decision not to buy back shares, however the market judgement is that over time the asset base will not perform as well as e.g. Witan's will.
So - in short - I am concerned at the total return figures projected for the future - not the actual numbers, because no-one knows those - as evidenced by the market view (and the better view it has of Witan). The managers need to do something to either boost that performance or improve the view given to market makers/analysts. IMHO
As we are at the risk of boring other readers, I will say no more on this subject.
Have to confess I don't watch the discount that closely to be aware of the swing that took place. The share price hasn't fallen by 10% of the last few weeks, so that would suggest that the discount has emerged due to an increase in NAV. Reason to be cheerful, surely?
In terms of buybacks to reduce the discount, wouldn't dumping cash to buy shares - the cash raised either through raising debt, or disposal of assets - simply reduce the NAV, leaving those who do watch the discount to sell shares on the basis that the NAV was lower.
If the market thinks FRCL should be priced at 10% less than the value of it's assets, then that is what the shares will be priced at, whether the underlying assets' value moves up or down. Is there any point in measures that will move the NAV down, if that's the case?
I agree with you about the advantage of buying shares in an IT with a discount of 10% to the underlying NAV. My point was, the discount (which has historically been 8-10%) had narrowed to almost zero by a combination of manager buy backs, better investment performance and presumably a more positive market assessment of the value of that performance. It is the reasons for the reversal of that position, in such a short time, that I find worrying. In the same time frame, the discount with Witan remains near zero.
That means that the relative performance of FRCL v WTN over the last 6-8 weeks has been abysmal; and for no obvious reason. I am not planning on cashing out just yet - perhaps in 2 years time, so from that point of view - the higher the discount the better whilst I continue to buy shares - but if the higher discount is a result of market perception of current and anticipated poor comparative performance - that does not look good for the mid term future.
I would like the managers to adopt a positive policy of restricting the discount to no more than 5% (or less). Buys backs at this level would at least guarantee leveraged returns of 10% +
It is a curious thing that some trusts run a much higher discount than others. 10% at the moment according to bloomberg, against a longer term average of 8.6%. This obviously demonstrates that share price can move against NAV performance depending on the wiles of the market.
I suppose one interpretation may be that the jump in share price last year has lead to some profit taking on FRCL shares, meanwhile the assets that FRCL are invested in have continued to perform.
To some extent if I can by shares at a 10% discount rather than par, I'm happy. The dividend is 10% higher too. Although I can see it would be frustrating if you wanted to cash out.
Speaking of which the changes allowing Child Trust Funds to be converted and transferred to Junior ISAs will benefit the holdings I have for my kids. F&C's £25 management fee is too much for the sums value held in the CTFs. And since one can hold FRCL shares in any old ISA, I'm off to Youinvest; No ISA management fee and a good range of shares and funds.
I'm sure its been pointed out before, but if you click on Fundamentals (under the Analysis tab) it gives you all the dates for dividends. Next one (final) due to be paid 1/5/15 - ex-dividend now past Mar 27.
A more relevant question would be - why has the discount gone back to 8% ??
"In the latest list of investment trust Dividend Heroes released by the Association of Investment Companies (AIC), nine trusts now have a record of 40-plus consecutive years of dividend growth; a further name, LSE:ATST:Alliance Trust, is likely to ..."
9 months ago, I posted a very critical set of comments, particularly related to the high discount against NAV and the relative performance compared to Witan IT.
I'm sure it's wasn't my comment that triggered the change in fortunes, but credit where it's due. The discount has narrowed considerably (less than 2% today I think) and F&C overshadowed Witan by 6% for 2014. Total return was a creditable 26% (according to Trustnet), so we'll done to the managers.
More of the same please!
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When looking at the bench mark comparison, clearly it's no longer a photo finish. Lagging by 20%+ and getting further behind by the day.
Oh well, no performance bonus for anyone. It's a good job they pay them back when it's the other way. Of course they do!
To return to my original question, apparently it can!
The difference in SP performance is stark. A year ago, these two plus Alliance were trading at discounts around 10%. Today, F&C is still around 10% whereas Witan is trading without a discount. OK, Witan's yield is 2.1% v F&Cs 2.5% but the closing of the discount gap accounts for half that difference.
The market now rates Witan management much higher than F&Cs and what is being done to address that? Nothing !
As has been pointed out by others on this BB, management reporting shows complacency and clings to the fig leaf of beating benchmarks by tiny margins, and even that has gone negative in the last quarter. It's long overdue for the managers to get a grip and turn things around. I didn't invest in F&C as a tracker fund !
They do say most funds will fail to beat the index, after costs are deducted. So maybe it hasn't done so bad. I put some cash in this for the kids CTF. I suppose if you've stuck it out for the reign of JT, you may as well see if the new CEO can liven things up a bit.
I held AXA Framlington Health for over a decade whilst it languished. Luckily I kind of forgot about it. Anyhow they got a new girl in, and whether it's her or just that things change, but its done fabulous over the last 3-4 years.
mmmm I haven't had that letter yet..... Re interest, I was looking at the new TSB a/c. I may look a little closer now.
Income yes, but its not very comforting when your largest holding is going nowhere. Both are certainly a better feeling.
Ok, so JT is leaving. I did feel that the Annual report went over the top when pointing out that it beat the benchmark index. Yes it did. Was that by one decimal place or two?! Or to put it another way, a photo finish!
On the other hand it does produce a bit of income which can't be sniffed at since I received a letter from Lloyds today telling me they are halving the rate of interest payable on my Platinum and Classic Vantage accounts!
The subject header says it all.
This fund is going nowhere, FAST. Sorry, it going the wrong way, fast!!
Going nowhere would suggest it is holding its own. Pretty soon all performance figures will be 35/35 or last in each and every sector.
Yes, Prof, I have same problem. I started the transfer in early March (to ii). On enquiring of ii last week what was happening I was told they have done everything needed at their end but F&C have a backlog and have stated it will likely take a further 8 weeks to complete the transfer. I emailed F&C last week to say this is completely unacceptable but no reply as yet. My son closed his PIP but sold the shares rather than transferring them, and received his cash in the normal few days. I can't see why transferring the shares would take longer, since when you sell them you are in effect transferring them to a new owner.
Having instructed F&C to transfer shares to another broker because of their new charging regime it seems impossible to get them to do anything in a timely fashion including responding to emails. Has anyone else had this problem? Perhaps they miscalculated how many PIP holders would ditch and switch.
The F&C PIP was my first venture into the stock market nearly 25 years ago, it was the first of it's kind set up to encourage small savers into buying their funds. Their main rival the Global IT had just been bought out by the Coal Board pension fund and they were worried the same thing was going to happen to them.
Anyway they obviously feel they don't need the small savers any more hence the new charges. It is no longer economical for me to hold in this way so have sold up. Will probably reinvest in the Scottish Mortgage IT saving scheme as that has consistently outperformed F&C anyway.
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