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Investment Analyst Aidan Moyle shares our analysis on the manager, process, culture, cost, and performance of the F&C Investment Trust.
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.
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, although the rewards can be attractive, these are higher risk since they can be harder to sell – meaning they are less liquid. Tapping into all corners of the market, the trust could add diversification to a portfolio focused on income or both income and growth.
Paul Niven joined what was then Foreign & Colonial (now Columbia Threadneedle) 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 Columbia Threadneedle’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 Columbia Threadneedle, 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.
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 Columbia Threadneedle which helps to keep costs down. Where Niven believes Columbia Threadneedle 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 500 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 can also allocate to smaller companies which can add risk.
At the end of the trust’s last financial year in December 2022, 11% of its assets were invested in private companies. 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 part of the portfolio. Niven has been rotating from growth to value stocks in this region for some time and has now exited T.Rowe Price, the manager of their US growth investments. The money from that strategy has been allocated to JP Morgan who will use the proceeds to invest in US growth focused companies. The value exposure here continues to be managed by Barrow Hanley. Niven has also topped up the trust’s European and UK investments. However, the Europe exposure was later decreased on concerns over the impact of the conflict in Ukraine.
The manager uses gearing (borrowing to invest), which can magnify gains but also increase losses, so is a higher-risk approach. The level of gearing at the end of the firm’s last financial year in December 2022 was 7.3% of the trust’s assets. 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.
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 Columbia Threadneedle, previously 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. Columbia Threadneedle now manages the trust, and the board remains comfortable that little will change in light of these developments.
Along with the trust, Niven manages several other Columbia Threadneedle 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.
The ongoing annual charge over the trust’s last financial year to 31 December 2022 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. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges within any Hargreaves Lansdown account.
Since July 2014 when Niven took the reins, the trust’s outperformed its global benchmark. Over this period to the end of February 2023, its Net Asset Value (NAV) grew 159.00%* vs 142.17% for the FTSE All-World Index Net Tax and 115.41% for peers in the AIC Global sector. Its share price rose 187.44% over this period. 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. Withholding tax is a tax levied by an overseas government on dividends or income received by non-residents. By using the net index, the tax on these dividends is deducted.
Over the trust’s past financial year to the end of December 2022, its NAV decreased 5.30% vs a loss of 7.7% for the benchmark. The trust’s share price over this period fell 0.90% vs a fall of 16.80% for the AIC Global average.
The performance of the trust’s largest regional allocation – the US – was in line with the benchmark. The value portfolio managed by Barrow Hanley posted the strongest returns. However, this was offset by the core US exposure and growth exposure underperforming the index. The trust’s Japanese investments were the largest detractor versus the benchmark. Demand and supply disruptions in China were a headwind for Haematology business Sysmex, and weakening housing and DIY demand also put pressure on the share price of power tool manufacturer Makita.
The trust’s investments in private companies performed better than its publicly listed investments, with the private equity exposure growing in value by 3.6% over the financial year.
The total dividend per share for the year to 31 December 2022 was 13.5p, which is a 5.5% increase on the previous 12-month period. This trust is an AIC ‘dividend hero’ having increased its dividend for the 52nd year in a row.
At the time of writing the trust trades on an 1.32% discount and yields 1.47%, although remember yields are variable and aren’t a reliable indicator of future income.
|Annual percentage growth|
|Feb 18 – Feb 19||Feb 19 – Feb 20||Feb 20 – Feb 21||Feb 21 – Feb 22||Feb 22 – Feb 23|
|F&C Investment Trust||5.56%||1.02%||14.22%||12.05%||14.35%|
|FTSE All-World Net Tax||2.38%||8.23%||18.84%||12.35%||1.78%|
Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2023.
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Our investment trust research is for investors who understand the risks of investing and that investing in investment trusts isn't right for everyone. Investors should only invest if the trust's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of an investment trust before they invest, and make sure any new investment forms part of a diversified portfolio.
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