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F&C Investment Trust: April 2021 Update

Investment Analyst Henry Ince shares our analysis on the manager, process, culture, cost and performance of the F&C Investment Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Founded in 1868, F&C Investment Trust is the oldest Investment Trust. It has increased dividends over the years and is an AIC ‘Dividend Hero’
  • Paul Niven is an experienced asset allocator and has managed this trust since 2014
  • The trust uses a multi-manager approach and provides exposure to shares listed across the globe, as well as some private equity

How it fits in a portfolio

The F&C Investment Trust invests across the globe, with the aim to grow income and capital over the longer term. Publicly listed shares are the key focus, but the trust also invests in private equity, which is less liquid and can add risk. With exposure to all corners of the market, the trust could add diversification to a portfolio focused on income or both income and growth.

Manager

Paul Niven is approaching his 25th year at BMO, having joined what was then Foreign & Colonial as a graduate in 1996. He initially analysed Asian companies but has spent much of his career focusing 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 has managed the trust since July 2014, but he doesn’t do all the investing by himself. 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 carefully blended together and monitored closely. This is known as a ‘multi-manager’ approach.

Process

Niven is responsible for guiding the asset allocation and manging 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 extremely diversified and provides exposure to over 450 companies.

Historically the trust had a larger amount invested in the UK, but it now accounts for under 10%. Just 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. The manager also allocates to smaller companies which can add risk.

He also invests a small portion in private equity – companies that aren’t listed on the stock market. He thinks they can provide good long-term growth potential, but they’re harder to buy and sell, making them higher risk. Unquoted companies in a closed-ended investment trust don’t pose the same potential problems as they do for open-ended funds though.

The manager made several changes to the portfolio over the past year including new investments in two global equity portfolios, one managed by the global equities team at Pyrford, and the other by the BMO Sustainable Opportunities team. More recently, Niven sold some of T Rowe Price’s US Growth strategy, which is the trust’s largest investment, after it performed well and invested the proceeds into the Barrow Hanley US Value portfolio, which was weaker.

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.

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 2020 was 0.59%. 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 Niven took control of the trust in July 2014 its share price has risen 124.4%* vs 119.2% for the FTSE All-World index. 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.

Over the past year the trust’s net asset value (NAV) grew 19.6% vs 19.4% for the benchmark. The share price rose 14.2%. Performance was largely led by US investments with the likes of Amazon, PayPal and Nvidia driving returns. The trust’s Japanese investments also did well with notable performers including industrial automation company Keyence and manufacturer Hoya.

Europe was another strong performer with food delivery company Delivery Hero the biggest contributor. The company saw increased demand for its service as a result of the coronavirus-induced lockdowns. Exposure to private equity also paid off, delivering returns in excess of many listed equity regions.

Although it delivered a positive return, the trust’s allocation to Emerging Markets underperformed its benchmark. This was partly due to a lack of exposure to South Korea, which performed well. The trust’s investments in Indian and Indonesian banks also held back returns.

The total dividend per share for the year to 31 December 2020 was 12.1p, which is a 4.3% increase on the previous 12-month period. This trust is an AIC ‘dividend hero’ having increased its dividend for the 50th year in a row. At the time of writing the trust trades on an 8.19% discount and yields 1.55%, although remember yields are variable and aren’t a reliable indicator of future income.

Annual percentage growth
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
Feb 19 -
Feb 20
Feb 20 -
Feb 21
F&C Investment Trust 34.2% 17.0% 5.6% 1.0% 14.2%
FTSE All-World Index 37.7% 7.8% 2.9% 8.8% 19.4%

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2021.

Find out more about F&C Investment Trust including charges

F&C Investment Trust Investment Company Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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