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Ian Cowie: you won’t get hanged for recommending this great, grand survivor

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Ian Cowie: you won’t get hanged for recommending this great, grand survivor

It was the same year as the last public hanging in Britain and the final cargo of convicts were transported to Australia when Foreign & Colonial (FRCL) investment trust was founded in January 1868.

The simple fact of surviving the Great Depression, two World Wars and the global credit crisis is sufficient reason to celebrate the 150th birthday of this global generalist closed-end fund. But is it any good?

Sad to say, its short, medium and long-term performance does not rank well with most of its comparable trusts. F&C is often recommended as a suitable starting place for anyone seeking widely-diversified exposure to global economic growth.

I should know because, in the depths of the global credit crisis about a decade ago, I set up a savings scheme for my son, Joe, with this investment trust. At the same time, Sue, my wife, favoured a ‘risk-free’ building society account for the rest of his savings.

Needless to say, F&C has beaten the nearly return-free deposit account out of sight. But it has done less well compared to its peers. For example, F&C has underperformed the average for the Association of Investment Companies (AIC) global sector over the last one, five and 10 years.

To some extent that comparison may be unkind because this sector’s average has been inflated by the stellar performance of Scottish Mortgage (SMT), another global generalist which is also the only investment trust large enough for a slot in the FTSE 100.

Big bets on technology stocks in America and China have boosted returns at Scottish Mortgage and left most of its rivals in the dust. But the sad fact remains that F&C ranks third or fourth among the four largest long-established global investment trusts.

They are, in ascending order of market capitalisation, Witan (WTAN) £2.2 billion, which was set up in 1909; F&C £4 billion; Alliance Trust (ATST) £4.2 billion, started in 1888; and Scottish Mortgage £6.7 billion, founded in 1909.

Boosted by BATs – or Chinese tech giants Baidu, Alibaba and Tencent – and flying high on FANGs – or Facebook, Amazon, Netflix and Google – Scottish Mortgage delivered the best total returns over one, five and 10 years of 41%, 209% and 298% respectively.

Witan came second over all three periods with 22%, 135% and 187%. Then F&C ranked third with 20% and 119% and fourth over the last decade with total returns of 158% which were pipped at the post by Alliance with 165%. Dundee-based Alliance ranked fourth in this group over the last year and five years.

Devotees of F&C’s highly-diversified approach to investment can argue that it remains a better starting place for risk-averse investors than the much more focused and therefore riskier Scottish Mortgage, which might crash to earth if the BATs or FANGs fall from favour. That is why I am happy for Joe to continue making his monthly contributions to F&C and would certainly not suggest he chases fashion by switching to Scottish Mortgage now.

Full disclosure: I don’t hold any shares in any of these four funds – although I used to be a shareholder at Alliance and F&C many years ago – because my current needs are better suited by specialist investment trusts, rather than generalists.

However, horses for courses and different strokes for different folks. There will always be an important role for F&C - and other investment trusts like it - to serve many investors’ needs; including my son.

Here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.

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