WHEN the Foreign & Colonial Government Trust was launched in 1868, The Economist had its doubts. “The shape is very peculiar,” we worried, adding that “the exact idea upon which it starts has never been used before.” Some of the trust’s promises were “far too sanguine to ever be performed”. Nevertheless, we concluded that: “In our judgment, the idea is very good.”
That turned out to be one of this newspaper’s more successful forecasts. One hundred and fifty years later, the trust is still going strong, having delivered a compound annual return of 8.1%. It now looks after a portfolio of £3.5bn ($5bn), rather than the £588,000 it raised at launch.
In its own way, the trust is an example of how much the financial sector has changed—and how much it has stayed the same. The idea of a pooled portfolio seems commonplace now, but at the time it was revolutionary.
This was the 19th century, when Britain was confident of its worldwide role. The first portfolio comprised 18 overseas bonds, some in markets, such as Argentina and Peru, not ruled by Britain (the foreign element) and some that were, such as New South Wales and Nova Scotia (the colonial). This diversity allowed the trust to offer an initial dividend yield of 6%; not bad given that the prevailing yield on British government bonds was 3.3%.
The 20th century saw not just the decline of empires but the rise of inflation, which made a bond portfolio hazardous to investors’ health. The fund moved into equities in the 1920s; its first holding was in Shell, the oil giant, and the shares are still in the portfolio today. A century after its formation, the fund was almost entirely invested in equities.