FTSE 100: 7270.20 ▼ -5.44 (-0.07%)

Why I bought Foreign & Colonial for a 'Brexit' bounce

by Gavin Lumsden Jun 28, 2016 at 13:41

Nearly two years ago Citywire entrusted me with £10,000 to invest in a portfolio of investment trusts. This is the latest in a series of videos in which I talk about the challenges and opportunities I encounter.

In this video, I explain how, having gone a bit defensive at the start of the year, I'm taking advantage of the post-Brexit drop in the markets to become a little more adventurous, though I remain concerned with at least two of my holdings which have suffered.

This video refers to the following investment trusts:

  • Capital Gearing Trust (CGT);
  • Foreign & Colonial (FRCL);
  • Scottish Mortgage (SMT);
  • Henderson Smaller Companies (HSL);
  • Jupiter European Opportunities (JEO).

'Any opinions expressed in this video do not constitute a personal recommendation to you to buy, sell or subscribe to any particular investment and should not be relied upon when making (or refraining from making) an investment decision.'

Can't watch now? Read my script

Hello, finally with the European Union referendum out of the way I can turn my attention to my Top Trusts portfolio.

Uncertainty over the outcome draped over the UK stockmarket like a wet blanket this year, forcing investors to the sidelines.

Now the eerie calm is shattered, markets are in turmoil and there are almost too many things to consider!

I have to say my emotions are mixed as I consider my holdings in six investment trusts following the shock result to leave the EU.

As a citizen I’m appalled that the decision to turn our backs on our European neighbours was taken with so little planning or consideration of the implications for the UK and its standing in the world.
 
My hope is that our two main political parties choose leaders up to the challenge of healing a divided country, dealing with the constitutional nightmare the result has provoked while negotiating a good exit from the EU. That’s a tall order though.

However, as an investor I’m more positive.

The day of the result saw the pound plunge and the FTSE slide but while these wiped billions off the value of investments they also created many buying opportunities.

The decline in sterling is good for UK companies with overseas earnings whose value will be boosted when converted into pounds.

While the possibility of a recession has hit shares in domestically-focused companies, it could leave some vulnerable to takeover bids from foreign predators. An M&A boom could result from prolonged sterling weakness.

Also ringing in my ears were the words of James Anderson, joint manager of Scottish Mortgage Trust, which I hold, a global fund with a track record of identifying some of the world’s fastest growing companies.

This perennial bull told investors last week he had never seen so many great, transformative companies 

‘There are more reasons to be excited about companies than at any point in the history of capitalism.’ James Anderson, Scottish Mortgage Trust]

He also urged investors to think of the long term and not get fixated on single events like Brexit.

‘I don’t think our companies in Europe and the UK have anything to do with this [Brexit.’ James Anderson, Scottish Mortgage.

I think he has a point and, strange as it may seem, I’ve sold my core defensive holding in Capital Gearing Trust, which has served me well since I bought in January.

I considered ploughing the £2,500 into Scottish Mortgage but it’s quite a high risk fund and so instead I plumped for its £2.4 billion rival, Foreign & Colonial.

Foreign & Colonial is famous as the country’s oldest investment trust, launched back in 1868. It’s a more diversified fund than SMT but like it also has low exposure to sterling.

It’s cheaper than SMT too. At the end of last week the shares closed just over 11% below net asset value, a bigger than normal discount.

My work is not done. I’ve got concerns over two of my previous winners:

Jupiter European Opportunities and Henderson Smaller Companies which have fallen heavily this year. Now is not the time to quit these stock pickers but I do worry about their position should investors turn tail from their sectors.

I need to do some more research before considering my position.

Add a comment

Comments  (13)

  • Keith Cobby: 

    The ten year performance figures don't look right.

    20:21 on 28 June 2016

  • Nigel James: 

    Of which trust, Keith?

    20:33 on 28 June 2016

  • Kenpen2: 

    As a reader I'm appalled by the snide journalistic trickery in your "decision to turn our backs on our European neighbours".

    We HAVEN'T turned our backs on our European neighbours, we've turned our backs on the unelected, unaccountable, anonymous, corrupt, overpaid, over-expensed, self-serving, self-regarding cabal that run the EU, and given a lead to our fellow European citizens in the hope that at least some of them may follow.

    As for "was taken with so little planning or consideration of the implications for the UK and its standing in the world", remind me when and by whom consideration was given to the implications for the UK of being co-opted into an EU superstate. It was certainly never even explained to UK electors, much less submitted for their approval.

    20:55 on 28 June 2016

  • Fraser Mair: 

    Kenpen2

    You are absolutely correct. The case regarding the unelected elite in Europe has been overtaken by the immigration argument, and the positive views on the result of the referendum have been ignored by the "Remainers" in our own country.

    09:13 on 29 June 2016

  • Andrew Vincenti: 

    Tell us guys, the positives of Brexit with some facts, and not just waffle.

    09:58 on 29 June 2016

  • dd: 

    How about starting with the law of England and Wales?

    16:03 on 01 July 2016

  • dd: 

    Scottish law, too, if the Scottish people are keen to retain it.

    16:05 on 01 July 2016

  • Kenpen2: 

    Andrew V

    if you can approach it with an open mind, try the attached. lot of us have changed our minds about the EU over the past 20 years and this explains why :

    http://www.conservativehome.com/parliament/2016/05/boris-johnsons-speech-on-the-eu-referendum-full-text.html

    16:20 on 01 July 2016

  • I M: 

    Kingpen2

    Boriss's actions since Brexit show he didn't believe brexit was best for the UK, he knew he had been peddling confusion and lies during the referendum

    13:01 on 02 July 2016

  • Kenpen2: 

    I M - did you actually follow the link above and read his speech ?

    Whether Boris believed it at the time or believes it now isn't the issue. The issue is whether it rings true to you as it absolutely does to me....

    "So I find if offensive, insulting, irrelevant and positively cretinous to be told – sometimes by people who can barely speak a foreign language – that I belong to a group of small-minded xenophobes; because the truth is it is Brexit that is now the great project of European liberalism, and I am afraid that it is the European Union – for all the high ideals with which it began, that now represents the ancien regime.

    "It is we who are speaking up for the people, and it is they who are defending an obscurantist and universalist system of government that is now well past its sell by date and which is ever more remote from ordinary voters.

    "It is we in the Leave Camp – not they – who stand in the tradition of the liberal cosmopolitan European enlightenment ....." etc. Great stuff.

    14:04 on 02 July 2016

  • dd: 

    As someone who has studied seven foreign languages, traveled widely in non-English speaking countries, welcomed people from other cultures into my home, met frequently with a group of friends who we loosely call the "United Nations," I have to agree with the first quotation particularly!

    12:14 on 03 July 2016

  • Anonymous 1: 

    Still not sure which are better to invest in (Investment Trust) or ( FUNDS) Some sections repeat in both sections.

    07:06 on 25 July 2016

  • Northener: 

    Still not sure which are better to invest in (Investment Trust) or ( FUNDS) Some sections repeat in both sections.

    07:06 on 25 July 2016

Please use a browser with javascript enabled in order to post a comment

Mobile | Desktop