F&C gears up

30th Jul 2010 17:23

Investment trust titan Foreign and Colonial (F&C) took a step back in the first half of 2010, though it outperformed its benchmark index."We expected and got more volatile and difficult market conditions in the first half of 2010. Our listed portfolio suffered from this, but higher private equity valuations meant we outperformed our benchmark," said Simon Fraser, chairman of F&C.Net asset value (NAV) per share in the first half of the year ebbed 3.4% to 294.4p, while NAV per share total return was minus 2.2%. Over the same period the FTSE 100 fell 6.2%.Income in the six months to June 30 eased to £29.82m from £31.00m the year before. Over the full year the suspension of dividend payments by crisis-torn oil giant BP will reduce income by about £2,3m, the company said. The rest of the portfolio is showing encouraging growth in income but not enough to make up the difference, the company added."BP aside, we are seeing some pretty good dividend increases from blue chip companies," said Jeremy Tigue, an investment manager at the trust. Net loss on ordinary activities before taxation narrowed to £40.20m from £74.04m. Following the reduction in the trust's emerging markets exposure at the end of 2009 there were only minor changes in the portfolio. "Our UK and European portfolios performed well relatively though our emerging markets portfolio had a tougher time. We bought back 17,264,048 shares at a cost of £48.5m, adding 1.1 pence to net asset value per share. We took out new short term loans in sterling and yen which were worth the equivalent of £81m at 30 June 2010. Effective gearing (taking debt at market value) rose from 7.6% to 12.4% over the half year, as we bought into weaker markets in May and June," Fraser said. The company has maintained the interim dividend of 3p and has previously pledged to pay total dividends for the year that equal or exceed last year's payments, even if it means dipping in to reserves, as it almost certainly will. Effective gearing (taking debt at market value) rose from 7.6% to 12.4% over the half year, reflecting the trust's view in May and June that the time was right to buy into weaker markets.Tigue said that "valuations are not looking high, many companies are in a strong financial position, dividends are rising, merger and acquisition activity shows signs of picking up and the prospects for private equity are clearer than they were a year ago.""On balance we think the opportunities are greater than the threats and our increased gearing reflects this view. Our highly diversified portfolio gives us great flexibility to cope with whatever markets might do in the rest of 2010," Fraser added.