F&C Investment Trust 19 November 2020

F&C Investment Trust (FCIT) aims to generate both capital and income growth from global equities, investing through delegated managers (both internal managers within BMO and external ones). FCIT is the oldest operating investment trust with over 150 years of history, and is currently run by Paul Niven, who also heads up multi-asset investment within BMO GAM (EMEA).

The strategies within the FCIT Portfolio are divided into regional and global sectors. While many strategies are run in-house, others such as the US equity allocation – the largest allocation – are run by two external managers. When deciding on the weighting each strategy is allocated, Paul uses a combination of top-down work and analysis of the diversification benefit each strategy provides. This diversification of FCIT is key for Paul, as he tries not to produce a portfolio that chases winners, but instead one that has a measured allocation to key global sectors and attractive investment styles.

FCIT is one of The AIC’s 'Dividend Heroes', with 49 years of consistent Dividend growth. The trust currently yields 1.6%, against the AIC Global sector’s 1.1% average. As discussed in the Performance section, despite having a focus on both capital and income Paul has generated an NAV total return of 103.8% since taking over management of FCIT in 2014, edging out its benchmark’s (the FTSE All World Index) 95.3% . While the fund has traded at a discount for most of the last five years, it has mostly tracked the AIC global equity peer group’s discount. After the emergence of COVID-19 FCIT has traded on an increasingly wider discount, detaching from the wider peer group. FCIT currently trades on a 9.5% discount.

It is our view that FCIT offers investors a genuinely diversified way to access global equities, as unlike many of its peers it combines access to both listed equities and unlisted investments. The trust offers broad equity market exposure, and a 'one stop' asset allocation solution for those who are not interested in structuring a global equity portfolio using separate components.

We believe that Paul has impressively delivered on his objectives of growth in both total return and income since taking over. Strong total returns have been achieved while maintaining the tradition of dividend growth he inherited from past managers. While some AIC Global trusts have outperformed FCIT, this has generally been through them taking big factor or geographical bets. The danger of this less diversified approach is the potential for underperformance when trends change, or of the end investor having to try to time the market, which is notoriously difficult. COVID-19 has led to some wide market divergences, for example between the US and the rest of the world, between growth and value, and between technology and everything else. In our view maintaining balanced exposures to these trends is wise at this point in time, something which is ensured by FCIT’s process.

F&C's discount is wide versus its historical level. While trusts offering diversified global equity exposure may not be particularly in vogue at the moment, we believe this may be a symptom of the strong outperformance of US and tech-focussed funds, and this may change over the course of the cycle as and when that hegemony comes to an end.