I have referred in this column before to the curious fact that many emerging markets seem to have been emerging for a long time. The clearest evidence of this is that the early portfolios of Foreign & Colonial Investment Trust (FCIT) – the first collective investment vehicle in this country, with a proud heritage stretching back
to 1868 – would not be out of place in many emerging market portfolios of the early 20th Century.

Or to be strictly accurate, it would not be out of place in an emerging market bond fund. To mark its 140th anniversary at the beginning of March, FCIT produced data comparing its initial portfolio with its current one and listing the top ten holdings. The comparison is instructive.

Apart from the obvious difference that the trust started with £500,000 and now has assets of £2.4 billion, the breakdown of the portfolios illustrates how things have changed over the intervening years, but also how certain themes reoccur.

From bonds to shares
At the end of February 2008, FCIT’s portfolio had over 600 holdings, with the top ten accounting for less than 20 per cent of the massive total, all them equities or equity-based funds. Contrast that with the embryonic portfolio of March 1868, which had just 18 holdings, most of them bonds. The top ten accounted for 71 per cent
of the total and were almost exclusively government issues, apart from one issued by an Egyptian railway company.

The 1868 portfolio contained investments in many economies currently considered emerging – Turkey, Egypt, Peru and the wonderfully evocative ‘Danubian eight per cents’. What catches the eye, however, is F&C’s list of first investments in various countries. Modern fund management marketeers may pride themselves on coming up with the BRIC concept a few years ago, but the original investment trust was there before any of them. It held investments in Brazil and Russia in its initial portfolio, first invested in India in 1881, and in China in 1886.

Of course, the financial environment in which these investments were made was very different from that enjoyed today. That these economies are still regarded as emerging says much about the global economic order that has prevailed for much of the intervening 140 years. The fact that the first investment trust was called ‘Foreign & Colonial’ says a great deal about how its founders viewed the world.

These days you don’t have to venture very far to add overseas excitement to your portfolio. Companies increasingly look to list on a market through which they can raise capital most easily and cheaply, and attract the right kind of investors, irrespective of where they are based or, for that matter, where they actually carry out their business.

For example, it has been the case for some time that the most sensible way for a UK-based investor to get exposure to South Africa is to buy the shares of half a dozen leading South African companies that are listed on the London Stock Exchange. Their shares are listed in sterling, so you lose the currency risk; and they dominate their ‘home’ economy, yet have sufficient global interests to reduce the effects of the South African economy hitting trouble.

Home and away
This process is not just confined to global corporations. The best-performing share in the FTSE 100 Index over the month of February was Kazakhmys, with a total return of 2.2 per cent. If the name Kazakhmys isn’t immediately as familiar as Marks & Spencer or BP, that is probably because it is Kazakhstan’s largest copper producer. Yet it is listed on the London Stock Exchange and would qualify for inclusion in a portfolio of UK shares.

This is a process that can only increase in momentum. The traditional view of asset allocation between national markets is likely to become irrelevant and investors will have to pay more attention to where a company does
its business rather than where it lists its shares.