The £4.5bn F&C Investment Trust has completely sold out of global small caps in recent months as its manager thinks the macroeconomic backdrop is more supportive of larger companies.
Markets have tanked this year as inflation has climbed to multi-decade highs and the Federal Reserve, Bank of England and other major central banks were forced to hike rates more aggressively than expected.
In the half-year results for F&C Investment Trust – which is the oldest trust in the world – manager Paul Niven highlighted some of the portfolio changes that have taken place in response to this shift in market conditions.
Performance of F&C Investment Trust vs sector and index over 2022
Source: FE Analytics
“We made the decision to divest entirely from our exposure to global small-cap stocks, having initially reduced our holdings last year,” he explained.

“In our view, small-cap stocks are less likely to perform well in an environment of rising inflation and we decided to focus our exposure on the large-cap space.”
In addition to this, there have been some “substantial reductions” in the trust’s allocation to the more expensive parts of the equity market. This was mainly executed by selling down US large-cap growth stocks, a process that was started in the second half of 2020 and ran through 2021.
That said, some of these stocks remain as major holdings in F&C Investment Trust’s portfolio. Among its top positions are US tech mega-caps such as Microsoft, Alphabet, Apple, Amazon and Meta.
Some of the proceeds from the sale of global small-cap and US large-cap growth stocks were put into equity income names, which Niven expects to outperform given their relatively attractive valuations.
However, the main destination for these sale proceeds and £140m of borrowings through long-term private placement loans was into the trust’s cash position. Its allocation to this asset class rose from £53m at the start of 2022 to £352m at the end of June.
“With a relatively high holding of cash and diversified exposure across a range of different equity strategies, we believe that the company is appropriately positioned for the difficult market conditions that we expect,” the manager said.
“Given our longer-term perspective, we expect to be in a strong position to take advantage of investment opportunities as they emerge and to benefit from a recovery in equity markets in due course.”
Performance of F&C Investment Trust vs sector and index under Niven
Source: FE Analytics
Since Niven took over F&C Investment Trust in June 2014, it has made a total return of 164.8% - the fifth highest figure of the 17 trusts in the IT Global sector.