When investors panic and share prices crash, a smaller group of canny old investors start to get cheerful. These are the genuine long-term investors who specialise in researching real value, buying it and sticking with it for years. A market panic takes everything down, the good along with the bad, making this a good time for bargain-hunters.
So here I have picked four investment funds run by exactly such long-term investors, which I consider ideal for long-term savers and investors. In each case, there are good reasons for believing that you will be able to hold them for a decade or more and expect good returns.
Of course their prices are down a bit in recent months, but not nearly as much as the market averages, and in the long run, all have generated better returns for investors than the average managed fund.
All four are investment companies listed on the London Stock Exchange. One dates back to 1868 and the others all have long histories. They are ‘closed end funds’, meaning that they have a set number of shares in issue and do not issue and redeem shares on demand like unit trusts.
Demand affects the price of investment trusts
The closed nature of the funds means the price of their shares is set by supply and demand in the market, and the share price itself can be below or above the actual value per share of the trust’s assets. In the jargon, the price may be at a discount or a premium to NAV (net asset value, the value of all the trust’s assets divided by the number of shares in issue).
In practice, share prices do not deviate that much from NAV, because investment trusts have the power to buy back their own shares and usually do so if the level of discount approaches 15%. But in the case of the funds in my table, this rarely happens because these funds are among the best in their class so there is usually a healthy demand for their shares.
Performance of International Growth investment trusts
| Investment Trust (TER) | Six months | One year | Three years | Five years | 10 years |
| British Empire Trust (0.88%) | 94.20 | 101.70 | 158.30 | 282.10 | 390.10 |
| Caledonia (0.58%) | 98.20 | 104 | 151.50 | NA | NA |
| F&C Investment Trust (0.58%) | 97.00 | 103.60 | 147.50 | 215.10 | 182.60 |
| RIT Capital Partners (1.25%) | 99.20 | 108.20 | 162.50 | 260.70 | 335.10 |
*Final value of £100 invested over the various periods shown, includes reinvested net income. Data to 31/1/2008. Source: AIC
International growth offers real flexibility
The class they belong to is ‘international growth’. The managers do not have a commitment to the UK or any other country and the managers can move the money around the world’s stock markets as they wish.
This flexibility is one of the things that makes them a good all-weather investment, since they needn’t get pinned down in an underperforming region or country or sector.
A second factor in their favour is cost. Most unit trusts and open ended investment companies have annual costs of 1.5% to 2%. Those I’ve selected have TERs (total annual charges) of between 0.58% and 1.25%. Yet they have some of the best managers in the investment management business. So they certainly offer excellent value for money.
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Where the trusts invest their cash
| Percentage of assets held in: | Cash | UK | Europe | US | Japan | FE | Other |
| British Empire Investment Trust | 14 | 22 | 33 | 11 | 11 | 9 | 0 |
| Caledonia | 1 | 63 | 13 | 9 | 1 | 4 | 9 |
| F&C Investment Trust | 0 | 44 | 13 | 22 | 5 | 11 | 5 |
| RIT Capital Partners | 21 | 15 | 14 | 35 | 5 | 5 | 5 |
Data at 31/1/2008. Source: AIC
All these funds run their own regular saving and investment schemes. There is no contractual commitment for any fixed term, so you can stop and start saving as you wish and add lump sums and cash in all or part of your holding when you like. The costs are low since (unlike unit trusts) there is no initial charge built into the price of the shares.
RIT offers only a general saving/investment scheme; British Empire, Caledonia, and F & C run their own ISAs; British Empire and Caledonia offer childrens savings plans, and F & C also offers a Child Trust Fund. With monthly minimums at £25 to £50, these trusts really do offer a tremendous deal for small savers.
If you plan to invest large lump sums, then you may prefer to do this through a normal sharedealing account where a flat-rate dealing charge of about £10 could offer a better value.
F&C Investment Trust: order more information
Regular saving and investment schemes
| Provider | Saving/investment | ISA | Children’s |
| British Empire | £50/£250, Buy: nil, Sell: £15 | £100/£1,000, Annual: £30, Buy: 0.5% | NA |
| Caledonia | £50/£500, Buy: 0.5% | £50/£500, Annual £20, Buy:0.5% | NA |
| F&C Inv. Tr. | £50/£500, Buy: 0.2% | £50/£500, Buy: 0.2% | £25/£250, Buy: 0.2% |
| RIT Cap. | £20/£250, Buy: 0.5% | NA | NA |
British Empire
British Empire has applied a ‘value’ style of investing to world stock markets over the past five years under the management of John Pennink and this has generated not only good capital gains but also a steadily rising stream of dividend income, making it a favourite for retired investors.
The trust holds shares in a variety of listed companies but its speciality is holding companies, especially European ones where the real value of the assets is often difficult to ascertain without in-depth research.
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Caledonia
Caledonia is the family vehicle of the Cayzer family, City movers and shakers who made spectacular gains from backing Gartmore Investment Management from its inception. Their approach is old-style merchant banking/venture capital: they back people they know and trust and stick with them for the long term.
One of its most spectacular successes has been Close Brothers, the merchant bank, where Caledonia still holds 12% of the shares after selling the bulk of its holding for big profits. It also holds 18% of the shares of British Empire.
F&C Investment ISA: get more information here
Foreign & Colonial Investment Trust
The management company has changed ownership and is up for sale again by its present owner Friends Provident. But this investment trust, launched in 1868, has a fine record from a fairly conventional investing style. It maintains a wide spread of investments, mainly in larger companies, in the UK, US, Europe and the Far East.
The key thing F&C does better than many of its rivals is borrowing money when the market is low to buy more shares and then paying the loans off by selling shares at higher prices. As the biggest investment trust, F&C is also well geared up to the needs of individual investors and offers the widest range of saving and investment plans.
F&C Investment Trust: order more information
RIT Capital Partners
RIT is the vehicle of Lord Jacob Rothschild and about 30% of the shares are held by family members. The managers sold off a chunk of assets last year so that it has a healthy 22% in cash. About 20% of its assets are managed by third party managers in hedge funds and other specialist vehicles. In recent months it has raised its investments in gold and commodities.
In the case of Caledonia and RIT, the Cazyer and Rothschild families respectively hold hundreds of millions of their own money in the funds. With conventional unit trusts, the manager gets a bonus for doing well, but doesn’t lose his own money if he fails.
With these funds, the managers are highly motivated not to lose money as well as to make it. I reckon that investing alongside these brilliant and well-connected investors is one of the best decisions you’re likely to make.
