The world’s oldest investment trust may sound like a dinosaur of a prior age, but the F&C Investment Trust has proven that it can keep up with the times. With £4.9bn in assets under management, it continues to be a favourite among investors – and for good reason.
Over the past decade, the investment company has beaten the FTSE All World index by almost 40 percentage points, while it has made almost 50 percentage points more than its average rival.
Paul Niven took charge of the portfolio in 2014, overseeing the fund-of-funds strategy which invests in stocks from around the world.
Below he tells Trustnet why his fund should not be compared with growth or value ones, explains why it is not a closet tracker and outlines its new approach when buying into private companies.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
What is your process when building the portfolio?
You can break our process down into three areas – strategic decisions, tactical allocations and underlying stock selection. Strategy is related to long-term positions, including how we are investing and with whom we are investing. Tactical is shorter term and looks at macroeconomic variables such as earnings momentum and the environment. Finally, I delegate the stock selection to underlying managers, with weightings based on the first two categories.
Why should investors pick F&C?
It is an ideal portfolio for a core holding as it has a long history of delivering growth in capital and income. The trust has paid a dividend every year since its launch in 1868 and has raised payouts in each of the past 50 years while also delivering strong total returns for investors.
We provide exposure to a range of underlying strategies that are diversified from each other, as well as exposure to private markets, which is an interesting area for additional opportunities.
The principle is to not be at the top of the pile when growth or value is on a tear, but to provide a smoother journey over the long run.
How risky is the fund?
We are a growth trust, which means we buy listed and private equity companies and those are risky areas as in the short-term volatility can be high. However, in the long run, investors are usually paid well for taking that risk.
The way that we invest, however, makes us naturally less risky than many of our peers, who will have a narrow way of investing, fishing in one area of the pond. Our approach of recognising that there are multiple ways to add value should make a smoother return journey for investors.
Do you have too many holdings?
When you look at the components of the portfolio, each of those managers is running a focused set of holdings against their respective benchmarks. When you aggregate that up, then clearly you end up with around 400 stocks.
We are trying to blend the benefits of concentration with all of these individual approaches while diversifying against any single factor. We are trying to be a one-stop shop for investors who do not have the time or expertise to do the research themselves.
It is a fallacy to compare us with a growth or value manager that has 50 stocks as people that buy that fund will not have it as their only exposure to global equities. They will have lots of those funds and add them together. We are looking to do that job for them.
The trust has fallen to a big discount during the pandemic. Is this a concern?
When I started on the trust in mid-2014, it had traded at a consistent 10% discount for a decade. We then enjoyed a period of strong performance and the discount came in to a premium and we issued stock.
At the start of 2020, we were on a premium but then Covid came along and the discount blew out, I think, because we are large and liquid so were the first to be sold.
That hasn’t come back in to the extent we had hoped and we are not alone in that. We have bought back shares, but my view is that it doesn’t take too much for us to regain either a narrow discount or move to a premium, and we think we are starting to see that now.
What have been your best calls in 2021?
Being light on China has helped relative performance this year – it is as much about avoiding what has not done well as holding the outperformers. China has suffered from domestic regulatory crackdowns and the market has declined in value. Being light on names like Alibaba which has declined by almost 30% has helped.
We have also moderated our position on large cap growth stocks, which we started doing in the middle of 2020 after the pandemic bounce when these stocks did phenomenally well. We allocated to cheaper value segments of the market, which have done well this year.
At the stock level, Sea Ltd – which is a Singaporean internet company that focuses on entertainment, e-commerce and digital services – has done really well, up about 70% this year.
And your worst?
The worst call at a stock level was Altice the telecoms company, which is owned by our US value manager. It reported very poor net subscriber addition and the stock has declined by around 50% year-to-date.
There have been obvious operational issues but it is the view of the manager that these are localised and the stock is now trading at around half the valuation rating of its peers, so there is value there, but it has clearly not worked for us this year.
What is the most exciting area for the fund moving forward?
One of the most exciting areas that we have allocated capital to in recent years is the private market space. Investors will be aware that companies are remaining private for longer and we have a long history of investing in private markets.
Last year we made a commitment to a bespoke new programme with Pantheon, giving us leading venture and growth managers that are extremely difficult to access.
We believe in that segment of the market, the spread of returns is huge, but in order to deliver the returns we expect, you have to use the top managers in the sector.
It provides us with interesting opportunities in the early-stage disruptive technology companies. We are also seeing good progress from our existing co-investment programme, such as, Pet Centre, which is a retailer of pet supplies in south-eastern Europe. We made more than four times our money on that investment since we first bought in three years ago.
Do you incorporate environmental, social and governance (ESG) in the trust?
It is an area of focus for us. BMO and the trust have been actively involved in the space for a long time so it is not something new, but we are on a journey here. As a company there are some areas that recently we have committed not to invest in, such as tobacco, weapons and thermal coal.
We made a commitment to net zero by 2050 or earlier if possible. The trust’s carbon footprint is much lower than that of the benchmark but a big part of our focus is engaging companies on climate change and net-zero goals, which we think is a much better way to affect real world change than divesting.
Our underlying managers all incorporate ESG into their selection process but there are different applications in different areas. At the beginning of 2020 we made an explicit allocation to a sustainable opportunities strategy which is now worth more than 10% of the portfolio and has performed very well for us.
What do you do outside of fund management?
In my spare time I really enjoy playing tennis. I don’t play as much as I would like to, but I remain very competitive despite lagging fitness levels and limited ability.