Jeremy Tigue, manager of the £2.6 billion Foreign & Colonial investment trust, raised gearing on the portfolio to 8% during August. Tigue used the borrowings to buy equities, following a volatile summer for global stockmarkets.
The move marks a change of tack for Tigue after he reduced gearing significantly earlier this year. As reported in Fund Strategy on August 6, Tigue brought the trust’s borrowing down from 10% to 5% in June, its lowest level since 2000. However, he now expects it to return to 10% by the end of this month.
Speaking before last week’s half- point cut in American interest rates, Tigue said: “My feeling is that the worst of the credit crunch is over. There will be more fall-out from the subprime problems in America, but I expect a rate cut to allow the markets to function correctly again in the short term.”
In anticipation of the cut, Tigue had also increased his dollar borrowing, after closing out his long-standing strategy of borrowing in yen earlier in the summer. However, Tigue adds that he is considering using the yen again.
In terms of equity exposure, the trust remains overweight emerging markets and Tigue says he expects the region to remain resilient against further turmoil in America. The fund held 45% of its assets in Britain at the end of July, followed by 22% in North America and 14% in continental Europe. Its largest holdings were BP, Royal Dutch Shell and Vodafone.