Foreign & Colonial: Q&A with star manager Paul Niven

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 make the Foreign & Colonial Trust (FRCL) portfolio more global. Prior to that, a third of the portfolio was in UK equities. Today, there’s less than 6% in UK equities.

The focus on raising international exposure has been very positive.

How do you manage the investments?

I assemble and manage nine strategies for equity exposure. European equity exposure is managed within BMO (the asset management company behind F&C’s) but we have US growth and value portfolios with third party providers. Plus, there’s a multimanager slice managed by Rob Burdett and Garry Potter.

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The move from UK to global caused income challenges so we have a global income portfolio too.

Our exposure to private equity – investments in companies that are not listed on a public stock exchange – is now about 6%, quite low by historic standards. The performance of our private equity holdings has exceeded that of the equities. Going forward, private equity exposure will rise to between 5% to 15%.

Who are your investors?

Fifteen years ago, the shareholder base was mainly institutional shareholders, such as wealth managers. Today, 90% of shares are held by retail [individual] investors.

We have a policy on the discount to NAV. We used to have a policy to buy back shares to maintain a discount of 10%. We ended 2014 a little wider than 10%; in 2015, it was a 7% discount; in 2017, 4%; and today it’s 3%.

The aspiration of the board remains to get to NAV [which would mean that the share price refl ects the true value of the assets].

What are the prospects for investors in 2018?

2017 was a fantastic year for equity investors. The big question for investors now is whether to take risk off the table.

Equities still look attractive compared to bank accounts and bond investments.

The global economic outlook is very positive, growth looks like it will be the best in Europe for 12 years and the earnings picture is good. Interest rates are low because inflation is low.

However, in 2018 we are likely to see central banks pulling back asset purchases. Therefore, I expect volatility in equity markets to pick up – you can expect returns to become choppier, but equity markets not to decline.

I expect higher stockmarket levels than we have today before the bull market ends.

This article was first published by our sister magazine Moneywise, available online here.

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