F&C trust shrinks by over a quarter

The F&C Investment Trust saw its net asset value per share fall 28.5% to 256.6p in 2008, and its total value plunge from £2.49 billion to £1.78 billion, a fall of almost 30%.

Annual results for the world’s oldest investment trust show it was bitten by its policy of investing only in global equities in a year of extreme stockmarket falls.

Its share price fell by 28.3% over the year to 228.5p, and had fallen again to 194.5p by February 28.

The net asset value total return was down 26.7%, worse than the trust’s benchmark – a composite index of 40% FTSE All-Share and 60% FTSE All World ex UK, which lost 22.2% – but better than a “weighted average of our close peer group” which posted a fall of 27.4%, according to F&C.

The final dividend will be 3.45p per share if approved by shareholders, up from 3.15p for 2007.

The fund’s total expense ratio was 0.58% of average total assets.

“The biggest mistake we made over the year was to have any borrowings at all in falling markets,” said Mark Loveday, the trust’s chairman, in a statement. “We started the year with an effective gearing level of 7.0% and ended at 12.2%, valuing our debt at par…in 2008 gearing was a major negative.”

Gearing has returned to about 7% since the end of 2008, Loveday said, after the trust repaid all its short-term sterling debt with the proceeds of the sale of American investments.

The trust’s private equity portfolio rose in sterling value because it is held in dollars and euros, despite falling in valuation by about one-third.

The private equity exposure will harm performance this year, says Jeremy Tigue, the fund’s manager. However, he argues that in the long term, “those who can carry on investing [in private equity] will get precedence in future returns.”

In response to poor returns from American equities, F&C has taken back responsibility for its American portfolio, which had been outsourced to Investment Manager Selection. Its largest portfolio shift was the sale of British and emerging markets stocks in favour of private equity and American equities.

The statement notes that investors in the trust have received a total return of 45.8% over the 10 years to December 31, 2008, beating its benchmark and peer group, and says its size and spread make it well-placed to weather the financial crisis.