The Foreign & Colonial Investment Trust is preparing to go bargain hunting after sharp falls in the market.

The manager of the 140-year-old fund, Jeremy Tigue, has revealed that he is looking to increase gearing from current levels of 11 per cent to about 15 per cent in order to take advantage of the ‘bottom of the market’.

He says, ‘Most markets fell during the first half of 2008 and the financial sector suffered severely. The impact of the credit crunch on financials has been sustained and debilitating.

‘In this environment, F&C had a robust first half, moving broadly in-line with our benchmark after a very strong 2007. Performance was supported by an underweight exposure to the global financial market, strong UK equity performance and positive returns from our portfolio of 14 private equity firms.’

The F&C Investment Trust began increasing its gearing at the start of 2008 in Yen and US dollar borrowings, but later switched these into US dollar, euro and sterling, reflecting a more cautious stance.

According to Tigue, caution is imperative in gearing and he has been taking out short-term loans in sterling for the first time in 16 years as he expects the pound to be weak. Looking to the future, Tigue believes volatility will prevail.

He says, ‘The UK is currently amongst the worst placed economies in the developed world. The housing market is following the US, inflation is high and government finances are messy, so I expect the UK economy and sterling will be weak. But, UK equities are almost as cheap as they have been at any time in the last 20 years.

‘While it is difficult to call the bottom of the market with precision, history suggests that when the streets look pretty bloody and doom and gloom prevails, that is a buying opportunity for long-term investors.’

He adds, ‘Our strategy is to take advantage of expected volatility to increase gearing to about 15 per cent at the bottom of the market so as to be well positioned for a recovery into 2009. For now we intend to remain underweight in financials and will diversify the portfolio, looking for the best buying opportunities available.’