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F&C Investment Trust: May 2020 fund update

Investment Analyst Jonathon Curtis provides an update on the F&C Investment Trust following the release of its annual report for the year ending 31 December 2019.

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.

  • Share price and NAV increased 22.9% and 19.1% respectively, compared with 22.3% for the FTSE All World index
  • Investments in nearly all regions did worse than their benchmarks, with Europe the exception
  • A total dividend of 11.6p was paid – a 5.5% increase compared to the previous period

How it fits in a portfolio:

This trust invests in all parts of the globe, so could be used to add international exposure to a UK-focused portfolio. It’s also highly diversified, so could form the core of an investment portfolio by offering a broad range of investments from lots of different camps. The modest private equity exposure could also boost growth potential and provide different returns to the stock market, as long as investors don’t mind the risks.

Manager:

Paul Niven is a long-standing employee, having joined what was then Foreign & Colonial in 1996. He has over two decades of investment experience and took over F&C Investment Trust in July 2014. He’s also Head of BMO’s Multi-Asset Portfolio Management.

Niven has ultimate responsibility for the trust, but doesn’t do all the investing himself. He’s handed the responsibility for parts of the portfolio, including most of the North America portion and some of the private equity holdings, to other third-party managers. This means the trust partly adopts a so-called ‘multi-manager’ approach.

Process:

Niven aims to provide long-term growth in both capital and income, by investing in companies from around the world. When he took over the trust it was invested mostly in the UK, but under his tenure he’s made it much more global.

Nearly half the trust is currently invested in North American companies, although that’s still less than the global stock market average. The rest is a mix of developed markets like Europe, the UK and Japan, as well as higher-risk emerging markets and smaller companies.

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 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. Niven’s got the resources of a large team at his disposal though.

Cost:

The current annual ongoing charge is 0.63%, which is slightly lower than the previous period. This is partly down to the ‘tiered’ management fee, which falls as the trust grows larger. We think this is fair value for a well-diversified, actively managed investment trust run by an experienced manager. If held in the HL SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 for a SIPP and £45 for an ISA) also applies. Investment trusts are free to hold in a Fund and Share Account.

Performance:

The trust’s investments in nearly all regions failed to beat their respective benchmarks during the period under review, including North America, emerging markets and Japan. Europe was the only region where the trust’s investments did better than the market.

The private equity investments also produced weak performance, growing 0.2% in a year when equity markets experienced double-digit growth. They were held back by declines in the value of the private equity fund-of-fund holdings and a 17.4% decline in life sciences investment company Syncona.

Gearing helped improve returns, but not by enough for net asset value (NAV) to exceed the FTSE All World benchmark. The trust’s share price growth did though, as the discount changed to a premium during the 12 months under review. The trust has since returned to a discount, which is currently 5.5%.

More recently performance has been volatile. The trust fell more than the market since the pandemic-related turbulence began towards the end of February, but has also recovered more strongly since markets rebounded in the second half of March.

This is a very short period of time over which to judge investment performance though. Over the longer term Niven’s performed well. Since he’s run the trust it’s done better than the broader global stock market. Remember past performance isn’t a guide to future returns.

The total dividend per share for the period under review is 11.6p, which is a 5.5% increase on the previous 12-month period. It’s also impressively the 49th year in a row that income paid has increased but this shouldn’t be seen as a guide to the future. The trust currently yields 1.8% although remember yields are variable and aren’t a reliable indicator of future income.

F&C Investment Trust performance under Paul Niven

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2020.

Annual percentage growth
Apr 15 -
Apr 16
Apr 16 -
Apr 17
Apr 17 -
Apr 18
Apr 18 -
Apr 19
Apr 19 -
Apr 20
F&C Investment Trust 2.0% 32.2% 18.4% 8.3% -6.2%
FTSE All World -0.3% 31.2% 7.8% 11.3% -1.3%

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

Find out more about F&C Investment Trust including charges

F&C Investment Trust 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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