F&C Investment Trust 12 June 2023

F&C Investment Trust (LON:FCIT) aims to provide both capital and income growth over the long term through a highly diversified, multi-manager investment strategy. FCIT’s long-standing portfolio manager, Paul Niven, has responsibility for deciding the trust’s strategic and tactical asset allocation by utilising a range of specialist fund managers. As discussed in Portfolio, Paul takes a highly active approach to portfolio management, with allocations determined by both his top-down and bottom-up strategic outlook. Over the past two and a half years, this flexibility has led to a gradual rotation away from growth to a more balanced portfolio, through increased exposure to value and income-focussed mandates.

Paul’s significant 12.3% allocation to private equity offers a differentiated way to generate alpha compared to most strategies in the global sector. Performance has been consistent over the past five years, with the naturally diverse and active management strategy minimising the impact of stylistic market sell-offs and volatility, compared to the equity market and the typically growthier global sector. In March 2022, the board refinanced the trust’s long-term debt, significantly reducing the blended rate from 7.1%, at the end of 2013, to its current level of 2.4% (see Gearing).

FCIT has marked its fifty-second year of consecutive Dividend increases and paid a fully covered dividend last year. The trust currently yields 1.5% and remains one of the AIC’s ‘Dividend Heroes’.

The growth and popularity of the strategy has led to the oldest investment trust within the AIC universe rejoining the FTSE 100 Index in September 2022. It has also contributed to strong share price performance over the past 12 months and a significant narrowing of the Discount from 12.9% to 5.6%, at the time of writing.

In our view, Paul’s gradual shift to a more stylistically balanced portfolio naturally elevates FCIT’s status as a one-stop shop for investors seeking a broad global equity exposure. The diversified nature of the strategy is likely to lead to similar risk characteristics to the FTSE All-World Index benchmark. However, Paul’s active management and gradually increased allocation to high-quality, early-stage private equity offers the potential to generate alpha during periods of market turbulence. We believe Paul’s well-timed rotation out of growth into more value-focussed and income-generating strategies will likely reduce the volatility and offer a more diversified exposure in future.

FCIT has performed well over the past five years versus its global peer group. When combined with the resurgence in income growth, we believe this highlights the fundamental strengths of a diverse strategy. Given that equity market uncertainty looks likely to remain elevated for an extended period, we believe this will continue to be an attractive way to invest for long-term investors.

The strategic decision to significantly reduce FCIT’s long-term debt, coupled with the significantly increased level of cash in the portfolio, ensures Paul has a significant amount of firepower to allocate to more attractively valued opportunities. This may offer a potential source of long-term outperformance, should such opportunities present themselves in what is likely to continue to be an uncertain market environment.