Evening star., 1932-09-27
INVESTMENT TRUST
INTERESTS POOLED
Britons Cooperate to Pro.
tect Themselves Against
Bond Defaults.
BY CHARLES F. SPEARE.

:
NEW YORK, September 27.-Man-
ayers of investment trusts in this coun-
try were deeply interested in the news
from London that $1,000 100000 as
sociation of British investment trusts
had been formed to protect their
Interests and that of their shareholders
against defaults on domestic and for
eign bonds. 1t was stated that the or
ganization had the support of over $50
Of the leading investment trusts of
Great Britain.
1t Is expected that certain amount
of cooperation will be effected between
the new association in Great Britain
and organizations of the same type in
this country. However. there is less oc-
casion for work of salvaging character
on the part of American trusts than
with those abroad. for recently there
has been heavy liquidation of foreign
internal and dollar bonds held by Amer
ican trusts, so that today their invest
ments in other parts of the world are
the smallest in their history.
Trace Heavy Losses.
On the other hand, the principle
Of geographical diversification of in
vestments, which originated with the
British trusts, has been maintained dur
ing the depression. They are today
f3cirg heavy losses both of interest and
principal. frcm defaults in South Amer
lea, Germany and in the countries
whose loans were in!tially supported
by the League of Nations as well as in
the Far East.
Recent surveys of British investment
trusts indicate that in some respects
they have weathered the depression
better than the younger management
trusts set up N this country, while in
others, where there was large amount
of senior securities represented in their
capital structure, they have not done
so well The British trusts quite uni
forrnly have debenture bonds and pre-
ferred stocks outstanding at fairly mod
crate rates of interest. With the depre-
citation that has occurred in their assets,
it has frequently been found that the
liquidating value of their shares has
been reduced to nominal figure.
This is, of course, true also in the
case of American management trusts
with a high proportion of debenture
bonds and preferred stock to total cap
ital. Not only have they suffered from
shrinkage in their portfolios. but they
have been embarrassed by the steady
dividends on stocks held have been re
duced CT passed and certain amount
of loss has resulted on defaults OF for
eign bonds and on those of American
public utility holding companies.
One of the largest domestic manage
ment trusts has recently completed the
sale of practically all of its foreign
currency bonds. These gave high
average income return 1t was neces-
sary, therefore, to replace these bonds
with domestic issues on which the re-
turn would compare favorably with
that abandoned through the sale of the
foreign issues This organization and
its associates have to date bought ap-
proximately s15,oooooo Of ..,,do domestic ses;ie
represented the largest proportion and
public utilities the next highest per-
centage.
Foreign Securities.
The principle of geographical diversi-
ficatiOn Of securities which the Amer
lean trusts copied from the British
pioneers in this financial field, worked
around the world. 1t has involved
heavy losses of capital and it is doubt
full if, in the future, it will be again
resorted to as a means Of building up
income or securing satisfactory trading
profits.
The American fixed trusts never went
into foreign securities to any extent,
as their success was predicated on an
investment in common stocks and an
appreciation in such stocks over long
period of years. They depended not
only on income from these stocks. but
on trading profits, to pay the large div
iderds which were promised to pro-
spective buyers. There have been no
| trading profits to speak Of since 1929
There has been a steady decrease in
income from dividends, though the po-
sition of several of these trusts has
been materially improved on the asset
side by the appreciation in holdings
of common stocks in the past two
months.
Copyright, 1922