The cautious tone adoped by F&C Investment Trust manager Paul Niven earlier this year proved prescient, as the trust reported a net asset value (NAV) total return of -9.6% for the six months ending 30 June 2022.
This world’s oldest investment trust outperformed its benchmark, the FTSE All-World Index, which fell 10.7% over the same period; but a widening of the discount – from 7.3% to 9.6% – saw shareholder total return fall by 11.8%.
Compare this with the end of 2021, when NAV and shareholder total returns were up 21.7% and 19.4%, respectively, and it paints a clear picture of how challenging the economic backdrop has been so far in 2022.
Niven said: “In terms of exposure, all listed equity regions lost value, with our North American equity holdings, our largest regional allocation, falling 12.1%.”
The only bright spot has been its private equity holdings, having posted a gain of 4.7%, which the trust said was “ahead of the returns from listed markets”.
| Strategy | Portfolio Weighting | Performance |
| North America | 39.6% | -12.1% |
| Europe inc UK | 10.8% | -13.8% |
| Japan | 4.6% | -16.8% |
| Emerging Markets | 7.2% | -12.5% |
| Global Strategies | 24.8% | -11.9% |
| Private Equity | 13% | +4.7% |
| Total | 100% | -10.8% |
Source: F&C Investment Trust
The trust made “substantial reductions” in its exposure to the more expensive parts of the equity markets, “predominately through the sale of US large-cap growth stocks”, starting in the second half of 2020 and during 2021.
In the first half of 2022, “we made further sales in expectation of underperformance in this area”, Niven added.
“In addition, we made the decision to divest entirely from our exposure to global small-cap stocks, having initially reduced our holding last year.
“In our view, small-cap stocks are less likely to perform well in an environment of rising inflation and we have decided to focus our exposure on the large-cap space,” he explained.
Setting aside dry powder
At the start of 2022, FCIT held £53m in cash, which rose to £352m at the end of June.
Some of this increase has been driven by £140m worth of additional long-dated borrowings drawn during the period through long-term private placement loans.
“We will use some of the proceeds to pay down a seven-year euro denominated load of €72m in July,” Niven said.
“Opportunities are emerging,” he added. “Valuations have corrected and are more attractive for long-term investors. While margins are at risk, equities will provide some hedge to inflation as corporates pass on price rises to consumers.
“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.
“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. “
