Sir Philip Rose was born in 1816, the son of a British army officer. He qualified as a solicitor at the age of 20 and was partner in the law firm Baxter, Rose, Norton & Co. (now Norton Rose) until 1872. A financial adviser to Benjamin Disraeli (UK prime minister from 1874 to 1880), he set up the Foreign and Colonial Government Trust (now the Foreign and Colonial Investment Trust) in 1868, with Samuel Laing, James Mackenzie and Lord Westbury. While the trustees managed the fund collectively until 1924, Rose was acknowledged as its driving force, and was a trustee until he died in 1883.
What was his strategy?
The trust was set up "to give the investor of moderate means the same advantages as the large capitalists by spreading the investment over a number of different stocks [bonds]". In practice, this meant buying a portfolio of ten to 15 foreign government bonds in the hope of earning a yield greater than the interest rate available on UK government bonds. The five largest holdings, accounting for half of the portfolio, were Spain, Turkey, Italy, Peru and Russia, all viewed at the time as risky markets (plus a change, you might well think).
Calculating returns is made harder by the fact that, before it listed in 1879, Foreign and Colonial was structured as multiple funds, some of which used a lottery to determine returns to investors. However, historians think that returns for those who invested in 1868 and stayed in for the first decade were 6.5% a year, well above the 3.5% from gilts. Between 1868 and 2017, its assets grew from an initial £500,000 to £3.7bn.
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What were his biggest successes?
Probably the most successful investment was in Turkish bonds, which were trading at around half their par value, giving an effective interest rate of 15% a year. Overall, nearly all of the bonds the trust bought met their payments, although the Spanish bonds were restructured, giving a capital loss of around 50%.
What can investors learn?
Diversification and seeking higher returns by investing in riskier markets are now standard practice, but at the time it was considered revolutionary. It's also worth noting that, despite its strong returns, the trust worked hard to keep costs as low as possible for investors, charging an annual fee of only 0.5% (far lower than what most active funds charge today).
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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