Special Report on Investment Trusts 4: Renowned for buying during market falls: Foreign & Colonial is the oldest, with many small shareholders and tremendous long-term performance. Paul Durman reports.

SPEAKING slowly and choosing his words with care, Michael Hart seems more like a diffident and avuncular academic than the brash City fund manager of popular imagination. Yet as Mr Hart is fond of pointing out, Foreign & Colonial Investment Trust has a track record which compares favourably with many much more glamorous stock market giants.

Mr Hart is joint manager of the trust, and every six months he produces tables which show how F & C's flagship ranks alongside the stock market's biggest companies - part of his persistent campaign to challenge the view that investment trusts are dull and boring.

The latest show that over five years, shares in Foreign & Colonial Investment Trust have outperformed the likes of Hanson, British Telecom and ICI. Over 10 years, it beats Grand Metropolitan, Cadbury Schweppes and Marks & Spencer. Over 27 years it has done better than Allied Lyons, Tate & Lyle and British Petroleum.

Over all three periods, the value of the trust's shares has grown much more than the FT index of the 30 leading stocks.

'Over the long term, a boring old investment trust can produce quite good results,' says Mr Hart, underlining his point with typical hyperbole. Foreign & Colonial Investment Trust is the world's oldest, dating back to 1868. It is also the largest, with nearly pounds 1bn under management.

As a general trust it has a broad remit, investing anywhere it believes it can achieve capital growth for investors' money. At the end of June, it had 44 per cent of its assets in the UK, 24 per cent in the US, 17 per cent in continental Europe, 8 per cent in Japan, 4 per cent in the Far East and 2 per cent in Latin America.

F & C is renowned for its steady investment in the face of falling stock markets. 'We are great believers in the view that in demoralised markets there will always be considerable bargains around,' says Mr Hart. With the recent weakness of the London stockmarket, Mr Hart has once again been cautiously 'nibbling away' at undervalued stocks. The trust's bargain-hunting has focused particularly on the depressed building materials and property sectors.

F & C doesn't always get it right, of course. The trust's recent performance has suffered from its buying into Japan while the Nikkei index was still above 20,000. Before its recent recovery, the index had fallen close to 14,000, costing the trust several millions.

The vital thing is not to panic. Mr Hart and his colleague Eric Elstob believe the Japanese market is now very reminiscent of the situation in the UK following the 1974 crash, a time when F & C scored some notable successes. 'There is a complete loss of confidence all round, unrelieved gloom,' Mr Hart said recently. 'They are worried about banks going bust and property companies going bust. There's no telling where it will end but one day the tide will turn.'

The value of F & C's cautious long-term approach is brought out by another of Mr Hart's tables - showing the growth in value of a pounds 1,000 investment in the trust made in 1945. That would today be worth nearly pounds 500,000. This far outstrips the growth in the retail price index, the highest paying building society account and the Barclays de Zoete Wedd equity fund index. Although there have frequently been short- term market reverses, the value of the pounds 1,000 investment in F & C shows a substantial rise at the end of every five-year period throughout this post-war period.

The trust's steady growth has unsurprisingly attracted a sizeable army of private shareholders. Their numbers have swelled enormously in recent years thanks to the success of the trust's savings scheme, an F & C innovation in 1984.

The constant weight of money from small investors has the useful consequence of narrowing the gap between the trust's share price and the value of its underlying net assets.

Apart from the problems of the UK economy, Mr Hart remains nervous about the generous rating of the US market. He believes there is potential for investors to panic and prices to fall back. F & C also has worries about the uncertainty caused by the approaching election and about President Bush's ability to get the US economy working.

Despite all these difficulties, Mr Hart says: 'It's very much my view that F & C will continue to make progress in the years to come - notwithstanding that the next two years could be very difficult.'

(Photograph omitted)