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Foreign & Colonial Investment Trust re-enters the FTSE 100 Index

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Foreign & Colonial Investment Trust has been promoted to the FTSE 100 index at the latest quarterly rebalancing.

Foreign & Colonial Investment Trust has been promoted to the FTSE 100 index at the latest quarterly rebalancing.

This means the GBP1.8bn trust is now one of the UK’s 100 biggest companies, and is one of only two investment trusts to appear in the index, the other being Alliance Trust.

Heavy losses on the stock market over the past year, particularly in sectors such as retail and resources, have led to many changes in the make-up of the index as companies’ market capitalisation shrinks.

FCIT’s manager says the trust’s promotion to the top flight has more to do with the share price declines of others than with any great leaps forward in FCIT’s assets.

Among those leaving the index on 20 March are private equity specialist 3i Group, transport operator FirstGroup and the London Stock Exchange itself.

Some of those joining, such as platinum miner Lonmin and silver miner Fresnillo, only left the index at the last quarterly review in December.

Jeremy Tigue adds that the appearance of FCIT in the FTSE 100 has in the past been an indicator of a coming upturn in the market.

"We were promoted to the FTSE 100 in 2003 for similar reasons after a long bear market, which bottomed in March of that year. The market subsequently moved upwards sharply, so history would suggest our inclusion is a bullish signal for markets."

But while in some respects the current market environment is similar to that of six years ago, Tigue points to some important differences regarding the trust itself.

"In 2003 our discount to net asset value was very low when we entered the index, and then widened out. Since then we have put in place a hard discount control mechanism, which would prevent that happening again."

FCIT’s average discount in 2008 was 5.8 per cent, compared with an industry average of 14.8 per cent.

Another significant difference is in the relative level of income available. In March 2003 the Bank of England base rate was 3.75 per cent; now it is just 0.5 per cent.

"Against that backdrop, FCIT’s dividend yield of three per cent looks pretty attractive," says Tigue.

FCIT is paying a total dividend for 2008 of 6.45p per share, and has committed to at least matching this level in 2009.

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