In 1997 Julian Cane, at the relatively young age of 27-years old, took over management of the Foreign & Colonial PEP Investment Trust. 25 years later, he remains the trusted custodian of that same investment vehicle, now renamed CT UK Capital and Income Investment Trust.
Our industry often talks about the value of a long-term perspective and in the intervening years there have been many occasions when such a perspective was called for; the boom and bust in 1999 and 2000 of the Technology, Media and Telecoms sectors, the Global Financial Crisis (GFC) of 2007-09 and Covid-19 shutdowns (2020).
Wisdom from a lived experience
As investors brace for another period of uncertainty, battling a cost-of-living crisis, inflation, rising interest rates and a war on Europe’s doorstep, real, lived (as opposed to read about), experience is a huge asset.
“There do appear to be more negatives now than we have had for a while,” Julian observes “but we have come through difficult periods before.” He recalls the time, at the height of the GFC, when equity prices for banks plunged so low that you could have picked up a share in each of the UK’s three biggest domestic banks, (Barclays, Lloyds and Royal Bank of Scotland) for the price of a packet of crisps. “Yet governments and central banks pulled things around.”
Anchoring to a robust framework
Whilst the market struggles to find its equilibrium, on a day-to-day basis his investment approach remains driven by robust analysis and a rigorous decision-making process. That discipline ensures the focus on how an investment is evaluated and its position in the portfolio, stays steady. It was this framework that helped to avoid exposure to the tech bubble of 1999 / 2000 which eventually burst.
“I’ve always had an open mind about tech but was sceptical about how you could make a reasonable assessment on the valuation of some of these companies who were yet to prove themselves.” Not buying into the momentum of that time was made a little easier by the Trust having an income requirement as the tech start-ups weren’t paying dividends, instead ploughing money back in for investment. “Although we had a difficult time explaining our position sometimes, ultimately it was the right thing for the Trust to stay out of those stocks.” The Trust’s ethos on how investment decision-making should follow an unemotional, disciplined, process was rewarded when the tech bubble burst.
The Trust has increased its dividend every year since launch in 1992 and over this period grown at more than twice the rate of inflation, bringing it recognition as an AIC Dividend Hero.
A new era for interest rates
We are again in a period of transition. For a long time there was increasing globalisation and this allowed the price of many goods, such as televisions, clothing and some food items to come down, as they could be imported from countries with cheaper manufacturing costs. “Now globalisation seems to have reached its end point or at least a breathing point.”
As imports become more difficult to source and the price of goods and services goes up in the UK, due to global supply constraints, higher labour costs (a smaller pool of European workers post-Brexit) and war, the long period of low interest rates and low bond yields, observed for most of the last 25 years, is drawing to a close. The UK base rate is now 1.25% having been raised again in June to try and control inflation, which was most recently reported at 9.4%.
Rising rates may feel uncomfortable for many investors unused to this direction of travel but it is important to remember that even with further rises pencilled in, we are in a completely different ball park to the 1980s and 90s when double-digit rates were not unusual and not even setting a peak. That was 17% in November of 1979.
ESG surfaces in the wider world
Other things that have changed over the decades include the ascent of environmental, social and corporate governance (ESG) as a consideration in the selection of investments. Even the acronym has evolved, SRI (short for socially responsible investing) was the byword for ethical investment not so long ago.
Whatever acronym is used the trust has a long heritage of incorporating ESG considerations into its investment process. “We have always believed that companies that run their operations in a sustainable way have an operating model that will more likely survive over the longer term,” says Julian “that view has just become more explicit in the wider world now.”
“I think all investors would also likely agree on the importance of good governance; management operating in the best interests of their shareholders, with remuneration aligned to company interests, transacting in a harmonious, sympathetic, way with their staff, environment and resources, to deliver good quality products or services. That model is likely to result in better returns in the long run. It is good that there is greater transparency around these issues now.”
All change and none
Columbia Threadneedle Investments shares the same principles by which the Trust has historically invested, “my job today remains the same as it was in 1997,” says Julian, “to invest shareholders money wisely to generate attractive long-term capital and income growth.”
