F&C Investment Trust 27 September 2022
This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
F&C Investment Trust (FCIT) aims to offer a complete investment solution for investors. The trust seeks to generate both capital and income growth by investing in a global equity portfolio, constructed through investing in a selection of both internal managers within Columbia Threadneedle Investments and externally-delegated managers. FCIT is the oldest trust within the AIC universe and has been operational continually since 1868. As a result of its continued growth, FCIT has now graduated into the FTSE 100, making it one of only four trusts to do so. The trust has been managed by Paul Niven since 2014, who is also Head of Asset Allocation (EMEA) at Columbia Threadneedle Investments.
As discussed in Portfolio, Paul takes responsibility for the selection of delegated managers and maintains the trust’s ongoing allocations in accordance with his strategic views. The significant increase in the allocation to value and income in favour of growth over the past two years has resulted in a more balanced solution, particularly evident when compared to the majority of peers in the global sector. The portfolio’s allocations are determined by Paul’s unique approach to combining top-down analysis with tailored manager selection, leading to a diversified, but demonstrably highly-active, share portfolio.
In addition, the allocation to private equity now makes up 12.5% of the portfolio, with the new commitments making up the majority of the allocation. These continue to contribute positively to FCIT’s overall Performance. Thanks to strong performance over 2021 and 2022, FCIT now ranks amongst the best performing global equity investment trusts over multiple time periods.
Having grown its Dividend by 5.8% in the last financial year, 2021, FCIT continues to be part of the AICs “Dividend Heroes” as it marks its 51st year of consecutive dividend increases. The trust yields 1.6%, as at the time of writing.
We believe that FCIT is a strong choice for an investor’s ‘core’ equity holding. The trust’s consistency of performance, particularly when compared to alternative options within the global sector, highlights its suitability as a global equity solution. We believe this to be a direct reflection of the manager, Paul Niven’s, active management style which ensures that the portfolio remains diversified and not overexposed to any single factor. Paul’s rotation away from high-growth strategies in the US, smaller companies and emerging markets, into more value and quality income-focussed managers reflects his view that higher inflation and bond yields constitute a fundamental change for markets that creates headwinds for growth stocks. Paul’s ability to reposition the trust in response to changing market themes should be advantageous, particularly in the tougher economic times ahead which are expected. This has been demonstrated by the trust’s relative outperformance of the peer group this year to date.
Over the past five years, FCIT has performed very strongly versus its global peers, notably managing well the rotation from growth to value. After a volatile period, NAV returns have ended up roughly in line with the market, with a beta of 1.0 and a correlation of 0.99 to the MSCI All Countries World Index (ACWI). However, the high active share of the delegated managers in the trust, along with Paul’s recently renewed focus on private equity, means that we believe FCIT has strong potential to add alpha in the future and offers investors a more diversified exposure than the typical global trust. Additionally, Paul has made substantial changes to the portfolio which we think positions it in a good place for the current environment. We believe that FCIT’s strong long-term performance and robust dividend growth profile, plus the historically-wide discount, makes it an attractive solution for a broad base of investors.
- Well-diversified portfolio with access to early-stage private equity strategies
- Discount of 12.1% is significantly greater than the five-year average of 4.9% and may provide an attractive entry opportunity
- Good long-term performance versus peer group and benchmark
- May underperform if there is a stylistic shift back to growth
- Increased manager risk given the use of delegated fund managers
- Although reduced significantly, gearing can enhance losses on the downside