Foreign & Colonial Investment Trust (FCIT) AIC Advisor Seminar June 2015 www.fandc.com
Agenda Introduction Beliefs and approach Portfolio construction The future 2
Introduction Paul Niven Fund Manager Paul Niven joined the Group in 1996, initially undertaking a fund management position in Pacific Basin Equities. Paul obtained an MPhil in Finance and graduated from the University of Strathclyde with a BA (Hons) in Accounting and Economics and is a member of the UK CFA Institute. Paul has had responsibility for the management of Multi-Asset solutions within the group since 2002 and is Chair of the Investment Policy Group in F&C. His role includes responsibility for strategic and tactical portfolio construction as well as manager selection across a range of mandates within F&C. Paul succeeded Jeremy Tigue, taking responsibility for Foreign & Colonial Investment Trust from 1 July only the third manager of the Trust since 1969. 3
Foreign & Colonial Investment Trust World s oldest collective investment scheme, launched in March 1868 Predates the first mutual fund by 50 years Original name Foreign & Colonial Government Trust Initial yield : 7% Initial capital 1,000,000 Original objective To give the investor of moderate means the same advantages as the large capitalists, in diminishing the risk of investing Current stated aim To secure long term growth in capital and income through a policy of investing primarily in an internationally diversified portfolio of publicly listed equities, as well as unlisted securities and private equity with the use of gearing Source: F&C Management Limited 4
The company Listed company with a market cap of c. 2.53bn and 2.95bn* gross assets 2014 operating income 49.7m, net income 37.9m** Top 150 UK company and periodic appearances in the FTSE100 (1995, 2003 and 2009) Investments in listed equity, funds, investment trusts and private equity Current gross yield of 2.1%*** 44 years of consecutive rises in dividends Broad investor base over 100,000 underlying investors one of the most widely held investment vehicles in the UK Relative to open ended funds Has permanent capital can take advantage of illiquidity Has revenue reserves can smooth dividends Can borrow to invest multi-currency bank borrowing Sources: *F&C Management Ltd as at 19.05.2015. **F&C Management Ltd as at 31.12.2014 ***Bloomberg as at 19.05.2015 5
Foreign & Colonial our proposition and aims Long term growth in capital and income for our shareholders Outperformance against market comparators and peers with lower volatility An equity focused portfolio solution for investors seeking growth related assets Value for money active management Diversified but focused investment portfolios Use our corporate structure to add value 6
Investment approach Consideration Asset allocation Listed equity Private equity Gearing Manager selection Implementation Dividends Approach willingness to spend considerable risk budget on strategic and tactical positions diversified global exposure managed by F&C and third party managers diversified global exposure managed by third party managers strategic and tactical multi-currency borrowing pragmatism between expected alpha and cost of delivery selective use of derivatives under consideration unwilling to sacrifice capital for income and strong revenue reserves due to historic conservatism Source: F&C Management Limited 7
Key decision points in the investment process Investment decision making process Strategic Asset choice listed equity/private equity/other Borrowing term/structure/currency Market views region/style/approach Tactical Liquid asset allocation/markets/sectors/styles/stocks Borrowing structure/currency Market views region/style/approach Selection Instrument selection physical/synthetic Manager strategies style/approach Portfolio construction /risk Risk allocation assets/markets/styles Diversification horizon/assets/positions 8
Foreign & Colonial current investments Primary exposures Foreign & Colonial Investment Trust North America Europe UK Emerging Markets Japan Private Equity Barrow Hanley T Rowe Price F&C F&C F&C F&C Years experience Harbourvest 11 funds F&C Smaller Companies Utilico Emerging Markets Pantheon 5 funds F&C Global Equity Income Global Multi-Manager Funds Source: F&C Management Ltd as at 31.05.2015 9
Current asset allocation Region Fund Value Fund Weight Fund Weight ex PE UK 311,779,137 10.5% 11.8% Europe ex UK 676,720,029 22.8% 20.6% North America 1,297,945,860 43.7% 44.6% Japan 221,766,859 7.5% 8.4% Developed Pacific 105,442,915 3.5% 1.5% Emerging Markets 321,181,564 10.8% 11.8% Liquidity 37,696,507 1.3% 1.1% Total 2,972,532,871 100.0% 100.0% 9% geared, with 175m of short dated multi-currency borrowing and 100m nominal 7 year borrowing in Yen and US$ Primary third party managers, T Rowe Price, Barrow Hanley, Pantheon, HarbourVest UK Europe ex UK North America Japan Developed Pacific Emerging Markets Total Oil & Gas 0.4% 1.1% 3.0% 0.0% 0.0% 0.1% 4.6% Basic Materials 0.3% 2.6% 0.5% 0.6% 0.4% 0.4% 4.8% Industrials 1.8% 3.1% 5.7% 2.0% 0.1% 0.6% 13.3% Consumer Goods 1.8% 2.7% 2.8% 1.7% 0.1% 3.0% 12.2% Health Care 0.8% 2.6% 8.5% 0.5% 0.0% 0.6% 12.9% Consumer Services 2.3% 1.0% 8.5% 0.7% 0.7% 1.5% 14.7% Telecommunications 0.3% 0.1% 1.3% 0.3% 0.0% 0.5% 2.6% Utilities 0.4% 0.2% 0.2% 0.2% 0.0% 0.4% 1.4% Financials 3.4% 6.3% 7.9% 1.5% 0.2% 4.2% 23.6% Technology 0.4% 1.3% 6.6% 1.0% 0.0% 0.8% 10.0% Total 12.0% 20.9% 45.1% 8.5% 1.6% 12.0% 100.0% Source: F&C Management Limited as at 30.04.2015 PE Private Equity 10
Gearing Gearing range of 0-20% for last ten years* low of 4.8% in May 2007 and high of 18.8% in September 2011 Gearing fallen from 14.3% at 31 December 2012 110m 11.25% debenture matured on 31 December 2014 7 year loan of $80m at 4% and Yen 6,600m at 2.5% taken out in April 2012. 100m equivalent in April 2012 and equivalent to 86.6m at 31 December 2013 200m of short dated facilities with 200m accordion available. 175m drawn* 175m short dated borrowing taken out in December 2014 with rates ranging from 0.66% on 75m equivalent Euro debt to 1.32% on 75m Sterling Blended borrowing rate down from c7.8% to c1.8%* Source: F&C Management Limited. *As at 31.05.2015 11
Private equity 16 funds investing globally, across sectors and vintage years. Several thousand underlying companies 59% primaries, 26% secondaries, 15% direct* 39% Europe, 37% North America, 20% Asia, 4% RoW* Positive cash flow 91m in 2014 ( 70m in 2013). 57m to end May in 2015 Portfolio valued at 332m and commitments of 58m at 30 April 2015 Source: F&C Management Limited. *As at 31.05.2015 RoW Rest of World 12
Dividend policy Dividend increased every year since 1970 more than doubled in each of the last four decades Move to quarterly dividend payments from February 2013 2014 dividend of 9.30 pence, an increase of 3.3% Revenue reserve of 15p per share as at end 2014 ( 84.4m) Expected further real rise in dividend in 2015 Source: F&C Management Limited as at 31.12.2014 13
Discount policy Buybacks permitted since 1999 but have slowed materially as overhang removed Fundamental change in shareholder register to 90%+ retail investors in FCIT 10% discount policy since November 2005 Low volatility in discount delivered Signs that inflection point reached Annual buybacks (m shares) 100 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015ytd Source: F&C Management Limited as at 31.05.2015 14
Discount policy A Progressive Strategy Progressive discount strategy introduced May 2015 FCIT discount level 0% Lowering of repurchase ceiling from 10% to 7.5% Purchased shares to be held in Treasury -2% -4% -6% Stated aspiration to close discount further Policy will be kept under review -8% -10% -12% Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Source: F&C Management Limited / Datastream 19.05.2015 15
Performance overview end May 2015 Consistent outperformance Shareholder return Quartile vs peers (Ptl) NAV return Quartile vs peers (Ptl) Open ended funds return Market benchmark YTD 9.0% 2 8.8% 2 8.2% 7.9% 1 year 22.8% 1 18.3% 1 15.1% 16.3% 3 year 19.3% 2 17.2% 2 16.0% 16.9% 5 year 13.1% 2 12.2% 2 10.1% 11.3% Source: F&C, Datastream, Morningstar, AIC as at 31.05.2015 NAV Net Asset Value; Ptl - Percentile 16
2015 and beyond 2014 was a year of transition and we continued the process of significant changes which have been implemented in the past two years Major overhaul is complete but we continue to evolve the portfolio, keeping true to the ethos of the Trust Continue to improve messaging and tighten up management of all investment processes Balance capital and income requirements Private equity allocation recommit or rundown? Borrowings consideration of longer term financing opportunities Ongoing review of risk allocation Continue to focus on performance delivery Make full use of resourcing and powers to deliver value for our shareholders 17
What has quantitative easing (QE) achieved? This is different, isn t it? US Fed balance sheet $tn (adjusted monetary base) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 QE2 QE3 0.5 2008 2009 2010 2011 2012 2013 2014 QE1 But isn t this inflationary? Source: Federal Reserve Bank of St Louis FRED as at 31.03.2015 18
Not much sign of inflation here Shouldn t all this PRINTING MONEY have led to Inflation? US core PCE YoY% 10 9 Economists argue that QE is a deliberate expansion of the central bank's balance sheet and the monetary base. (BBC News) 8 7 6 5 4 3 Should the FED worry about Deflation? MAYBE! 2 1 0 Dec 80 Dec 82 Dec 84 Dec 86 Dec 88 Dec 90 Dec 92 Dec 94 Dec 96 Dec 98 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Source: Bloomberg as at 31.03.2015 PCE Personal Consumption Expenditure; YoY Year on Year 19
Market impact Cross asset volatility moving up from multi-year low 4 3 2 NY Fed's Dudley I am nervous that people are taking too much comfort in this low volatility period, and a consequence of that, taking bigger risks. Low Volatility is $1.4 Trillion Emerging-Markets Risk, BIS says % 1 0-1 -2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Market Risk Index (IRISIMKT) Source: Bank of America Merrill Lynch Global Investment Strategy, Bloomberg as at 31.05.2015 BIS - Bank for International Settlements 20
Is this time really different? US unemployment % 12 11 10 9 8 NAIRU % 7 6 5 4 3 2 1980 1985 1990 1995 2000 2005 2010 2015 Source: Bloomberg as at 31.05.2015 NAIRU - Non-Accelerating Inflation Rate of Unemployment 21
Outlook Tepid global growth but US still more likely than not to raise rates this year ECB providing liquidity at an opportune time as dataflow is turning Difficult to argue the absolute value case for equities but relatives remain very appealing Large caps more than a short term bounce we have cut smaller company weightings further Currency is key in differentiating returns dollar should continue to gain Europe still has scope for catch-up Japan remains a trade but the fundamental case has improved We continue to watch and wait in Emerging Market allocation China is bubbling Good environment for our private equity portfolio to realise value ECB European Central Bank 22
Global reach. Regional expertise United Kingdom F&C Management Limited (1) Exchange House, Primrose Street London EC2A 2NY Tel: +44 (0) 20 7628 8000 F&C Management Limited (1) 80 George Street Edinburgh EH2 3BU, Scotland Tel: +44 (0) 20 7628 8000 Thames River Capital LLP (1) Exchange House, Primrose Street London EC2A 2NY Tel: +44 (0) 20 7628 8000 F&C REIT Property Asset Management Plc (2) 5 Wigmore Street London W1U 1PB Tel: +44 (0) 20 7499 2244 Europe Germany F&C Management Limited (1) Oeder Weg 113 60318 Frankfurt Germany Tel: +49 (0) 69 597 9908-0 Germany F&C Management Limited (1) Theatinerstrasse 11 80333 Munich Germany Tel: +49 (0) 89 71042 2033 Germany F&C REIT Property Asset Management GmbH & Co. KG Oberanger 34-36, 80331 München Germany Tel: +49 (0) 89 61 46 51 0 Ireland F&C REIT Property Asset Management plc (2) Block 5, Harcourt Centre, Harcourt Road Dublin 2 Ireland Tel: +353 (0) 1 436 4000 Netherlands F&C Netherlands B.V. (3) Jachthavenweg 109 e 1081 KM Amsterdam Netherlands Tel: +31 (0) 20 582 3000 Portugal F&C Portugal, Gestão de Patrimónios, S.A. (4) Rua de Campolide, 372 1st floor, 1070-040 Lisboa Portugal Tel: +351 (0) 21 003 3200 Switzerland F&C Management Limited (1) Claridenstrasse 40 8002 Zurich Switzerland Tel: +41 43 344 51 45 F&C is now part of BMO Global Asset Management, which has offices in Canada, United States, Luxembourg, Abu Dhabi, China and Australia. Full details are available at www.bmo.com/gam Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. The information, opinions estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time. F&C Group Companies may from time to time deal in investments mentioned herein on behalf of their clients. The source of information in all graphs is F&C unless otherwise stated. F&C Management Limited is a member of the F&C Group. The F&C Group is wholly owned by BMO Global Asset Management (Europe) Limited, which is itself a wholly owned subsidiary of the Bank of Montreal. (1) Authorised and regulated in the UK by the Financial Conduct Authority. (2) F&C REIT Property Asset Management Plc is a wholly owned subsidiary of F&C REIT Asset Management LLP and is Authorised and regulated by the Financial Conduct Authority. (3) Regulated in the Netherlands by the Autoriteit Financiele Markten (AFM) and De Nederlandsche Bank (DNB). (4) Regulated in Portugal by the Banco de Portugal and by the Comissão do Mercado de Valores Mobiliários (CMVM). CM: 05615