F&C Investment Trust 17 June 2024

F&C Investment Trust (FCIT) provides investors with a one-stop-shop investment portfolio, characterised by longstanding manager Paul Niven’s highly diversified, yet actively managed global equity strategy. As discussed in Portfolio, Paul utilises the expertise of specialist fund managers to pick stocks for their respective mandates, with Paul working closely with them to ensure these strategies target prescribed risk and performance characteristics. Paul has the responsibility for determining a long-term strategic asset allocation which will deliver both capital and income growth over the long term. He also tactically manages the portfolio considering his shorter-term outlook for markets.

A greater focus on value and income over the past two financial years has helped the trust to deliver its 53rd consecutive year of dividend growth making it one of the longest-standing AIC ‘dividend heroes’ within the investment trust universe (see Dividend). However, this positioning, alongside the diversified nature of the portfolio, proved detrimental to relative performance over 2023 due to a relatively low allocation to the ‘Magnificent Seven’. Over the past 18 months, Paul has been reducing the portfolio’s value exposure, returning to a growth tilt which reflects his more positive outlook for equity markets and the prospect of easing macroeconomic conditions.

Over the longer term, being more diversified has provided investors with good downside protection and risk characteristics whilst generating good absolute returns leading to cumulative outperformance of the benchmark and a greater outperformance of the average delivered by the AIC Global sector peer group. The strategy also provides investors with an allocation to private equity (11%), which at times offers a benchmark-agnostic source of returns and outperformed the listed equities exposure for four out of five financial years pre-2023 (see Performance). FCIT’s Discount is 11.8% at the time of writing.

In our view, FCIT can provide a good all-weather global equity investment solution which includes an allocation to the harder-to-access investment opportunities within the private equity universe. These have, at times, provided investors with a less correlated source of returns and alpha in weaker markets. Although FCIT’s performance struggled over 2023, the trust was not alone, and it was very difficult for active managers to outperform global equity indexes, given the concentration of performance in a very narrow cohort of stocks. In our view, the longer-term characteristics of the portfolio are attractive, and with investor sentiment likely to improve over the course of 2024, broadening the rally in markets, FCIT’s diversified portfolio could come back into form. In addition, we believe that Paul’s rotation back into growthier strategies, including new private commitments into Venture Capital and Growth Equity, may benefit the portfolio when rate cuts do eventually materialise.

The increasing use of internal strategies has reduced the look-through cost burden. Furthermore, the low long-term borrowing costs associated with FCIT’s Gearing may also prove useful should the broader market pick up. Alongside the potential for a narrowing of the discount, which has traded at a premium in the past, this may present a good long-term entry point for investors.