F&C Investment Trust: March 2022 Update

• Paul Niven uses a multi-manager approach to invest in both public and private companies around the globe
• Investments in private companies boosted returns over the past financial year to the end of December 2021
• The trust’s impressive dividend record continued

How it fits in a portfolio

The F&C Investment Trust aims to grow income and capital over the longer term by investing in companies from around the globe. Developed markets like the US, Europe and Japan are the primary focus but it also invests in higher-risk emerging markets.

The manager also takes advantage of the trust’s closed-ended structure by investing in early-stage private companies. By nature, these are higher risk since they can be harder to sell – meaning they are less liquid – but the rewards can be attractive. Tapping into all corners of the market, the trust could add diversification to a portfolio focused on income or both income and growth.

Manager

Paul Niven joined what was then Foreign & Colonial (now BMO) as a graduate in 1996. He initially analysed Asian companies but has spent much of his career focused on asset allocation (deciding how much to invest in different assets, such as company shares or bonds). He’s now lead manager of several funds and serves as BMO’s Head of Multi-Asset Portfolio Management.

Niven is the 11th manager of F&C Investment Trust and has been at the helm since July 2014. He doesn’t do all the investing by himself though. The portfolio is divided into different segments, each with their own dedicated manager. The majority are run in-house by BMO, but external managers are also used where he feels they can add value. Each manager has different strengths, styles and areas of focus which are blended together and monitored closely. This is known as a ‘multi-manager’ approach.

Process

Niven is responsible for guiding the asset allocation and managing the level of risk the trust takes. His framework centres around ‘four pillars’: economy, policy, valuation and behavioural factors.

Key economic indicators such as inflation and economic growth rates are monitored for different regions, alongside the level of support from governments and central banks. Niven and his team then assess how expensive or cheap (a measure of value) each region is compared to its history and other similar markets. Finally, they assess how sentiment is changing towards each region.

The underlying portfolios are each managed by different managers, most of which are run in-house by BMO which helps to keep costs down. Where Niven believes BMO doesn’t have market leading capabilities and insights, such as the US, he uses external alternatives. This approach means the trust is well diversified and provides exposure to over 450 companies.

Historically the trust had a much larger amount invested in the UK, but it now accounts for around 10%. Over half of the trust is invested in North America, although that’s still less than the global stock market average. The rest is a mix of Europe and Japan, and higher-risk emerging markets. Niven also allocates to smaller companies which can add risk.

As of December 2021 – the end of the trust’s financial year - 10% was invested in private equity. These are companies that aren’t listed on the stock market but Niven thinks they can provide good long-term growth potential.

Over the past financial year, the biggest changes to the portfolio were in the US. Niven has been rotating from growth to value in this region for some time and since the second half of 2020, he’s continued to dial down exposure to T Rowe Price, manager of their US growth investments. These moves were made to add more balance to the portfolio with the proceeds being added to more value orientated investments in the US – managed by Barrow Hanley – and BMO’s own global income strategy.

The manager uses gearing (borrowing to invest), which can improve gains but also increases losses, so is a higher-risk approach. He has the flexibility to use derivatives, which if used adds risk. Potential investors should refer to the latest annual reports and accounts for details of the risks and charging structure.

Culture

F&C Investment Trust, is the oldest in existence, having been founded in 1868 as a way for everyday people to pool their resources to invest. Nowadays the trust is part of BMO, a large multi-national financial services company headquartered in Canada. On 8 November 2021, Columbia Threadneedle Investments, which is part of Ameriprise Financial Inc. acquired BMO’s EMEA (Europe, Middle East, and Africa) asset management business. BMO continues to manage this trust and the board remains comfortable that little will change in light of these developments.

Along with the trust, Niven manages several other BMO funds. These include multi-asset portfolios of varying risk levels and sustainable versions of them. We prefer managers to run as few funds as possible so they can dedicate more time and focus to each one, however Niven does have significant resources and a large team at his disposal.

Environmental, social and governance (ESG) factors are considered, and all the trust’s underlying managers are all signatories of the United Nations-backed Principles for Responsible Investment. Climate change is a key focus with the board setting an objective for the portfolio to produce net zero carbon emissions by 2050.

Cost

The ongoing annual charge over the trust’s financial year to 31 December 2021 was 0.54%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. The platform charge doesn’t apply if the trust is held in a Fund and Share Account.

Performance

Since July 2014 when Niven took the reins, the trust’s outperformed its global benchmark. Over this period, its Net Asset Value (NAV) grew 145.87%* vs 137.93% for the FTSE All-World Index Net Tax and 119.77% for peers in the AIC Global sector. Its share price rose 151.38%. Remember past performance is not a guide to the future. All investments fall and rise in value so you may get back less than you invest.

It’s worth noting that the trust now reports performance against the FTSE All World Net Tax Index, rather than the FTSE All World Index to reflect the impact of withholding taxes.

Over the trust’s past financial year to the end of December 2021, its NAV increased 21.40% vs 19.49% for the benchmark. The share price rose 19.39% vs a 12.99% return for the AIC Global average.

The trust’s largest regional allocation – the US – delivered strong absolute returns but its growth-focused investments (T Rowe Price) meant they lagged the broader market. Likewise, the Europe section of the fund had a good year but not as good as the benchmark with lockdown beneficiaries such as Just Eat and Delivery Hero seeing downward pressure on their share prices.

The trust’s allocation to private companies continued its great run of performance with the trust’s investments here growing 30.1% over the financial year.

The trust’s Emerging Market investments also did well. China’s regulatory intervention was a headwind and saw the Emerging Markets benchmark decline 1.6%. Whilst the trust wasn’t immune, the Emerging Markets section of the portfolio grew 3.8%, helped by investments in India and Mexico.

The total dividend per share for the year to 31 December 2021 was 12.8p, which is a 5.8% increase on the previous 12-month period. This trust is an AIC ‘dividend hero’ having increased its dividend for the 51st year in a row. At the time of writing the trust trades on an 8.66% discount and yields 1.60%, although remember yields are variable and aren’t a reliable indicator of future income.

Annual percentage growth

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2022.

FIND OUT MORE ABOUT F&C INVESTMENT TRUST INCLUDING CHARGES

VIEW F&C INVESTMENT TRUST KEY INFORMATION DOCUMENT

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