‘The clock is ticking on Facebook and Amazon’

It is 150 years since Foreign & Colonial Investment Trust opened for business – and changed collective investing forever. The original trust has survived the fall of the empire, two world wars and the Great Depression – and has raised its dividend every year since 1971.

But the fund managed by Paul Niven today is a very different beast from the one that savers entrusted their money to in 1868. could be geographic or style. For example, in the US we have one manager responsible for “growth” stocks and one for “value” stocks.

These are then complemented by managers who cover European stocks, global strategies that focus on smaller companies, Japan, and so on.

Foreign & Colonial invented retail investing 150 years ago. Its manager tells Sam Brodbeck how it invests now

I can’t know everything about all those companies. We think it’s best to delegate responsibility for stock picking to individual specialists.

There are two extremes. One is to say that those managers should be left to run because they’re the experts. The other is thinking you can do everything: you make every decision and own it. If the boundary of your knowledge is 30 or 50 stocks, you’re constraining yourself and you’ll end up with biases. The optimal approach is somewhere in between. This year is looking good for growth, earnings and inflation. We’re on a pretty sturdy footing globally.

Outside the UK there is muted inflation – it’s a reasonably good backdrop for stocks, there are not many clouds on the horizon. For the first time on record the S&P 500 [the benchmark US index] has registered 12 consecutive monthly gains.

Volatility is at exceptionally low levels, so investors might well feel complacent and there’s not much on the horizon to change that view.

That better growth environment means the global economy is probably less US-centric than it has been in the past.

Other markets should do better, so we have about 20pc in Europe, which we think will perform well, and we’ve increased our exposure to Japan. And even though emerging markets performed very well last year, we think they will continue to outperform.

Financial services is the largest sector, the US is the largest geographic area, but our top 10 holdings include Amazon and Facebook.

We don’t d have a significant bet – those te technology stocks that have led the mar market will continue to do well but as we p progress through the bull market I think we’ll reach a point of excess there. C Changing central bank policy could a also lead to higher volatility in mark markets. That d does not mean the bull market is ov over but things will change. With tho those stocks that have done very w well, you could make a good case that they’ll reach a valuation that becomes more difficult to justify. The best-performing strategy has been that of our US growth manager, T Rowe Price. The biggest position was Amazon. When we appointed the manager about 10 years ago they bought it very quickly at around $25 (£18), so we’ve made about 50 times that on the stock.

We underestimated the extent of corporate earnings growth and we’ve been light on the US – that was a mistake. There have not been any blow-ups – reassuringly.

Yes, my family and I have shares currently worth about £900,000.

I get a salary, a cash bonus and deferred stock in BMO. I am paid according to performance and contribution to the business.

My interest was always in finance. But if I had the talent I’d be a tennis player. Microsoft is one of our top 10 holdings with attractions from a growth, value and income perspective. It is the dominant player in the software industry with its leading positions in personal computer server operating systems and productivity suites.

In recent years the company has been able to effectively pivot its business to be less reliant on PCs, periodic operating system and Office upgrades, to be more of a subscription business exposed to cloud computing.

This successful evolution means that it is becoming a more valuable company capable of strong sustained growth in free cash flow. For example, cloudbased applications such as Office 365, Dynamics Cloud and Azure are replacing legacy on-premises software. These applications are all experiencing rapid growth as customers look to move workloads to the cloud. The ability to gain value in cloud technology is beginning to be better understood by the market, as reflected in the performance of the stock. The durability of this growth makes forward-looking returns attractive. Despite this, the legacy parts of the business tied to PCs are still significant contributors to earnings and this presents some challenges. However, Microsoft is a beneficiary of President Trump’s recent tax reforms, which, in addition to significantly boosting Microsoft’s earnings and free cash flow, allow access to most, if not all, ongoing cash flow without having to pay higher taxes. Access to overseas cash can also be achieved in a more tax-efficient manner.

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