As the oldest investment trust in the world, F&C Investment Trust (FCIT) has seen more than a few market corrections and crises in its time.

And despite a tricky macroeconomic and geopolitical backdrop, the trust has managed to deliver solid returns over a one-, three-, five- and 10-year period.

The trust’s success has been underpinned by a diversified approach with a portfolio comprising a broad spread of global companies which has helped to spread risk for investors. But recently the trust has reduced its number of underlying holdings. In this article Shares spoke to manager Paul Niven to find out why, and also, how he is navigating the current uncertainty.

WHERE DID IT ALL BEGIN?

Founded in 1868, F&C is steered by global asset manager Columbia Threadneedle, has paid a dividend ever since its inception and, for the past 54 years, the FTSE 100 trust has delivered consecutive annual dividend rises.

It now has a market capitalisation of £5.3 billion and total assets under management of £6.2 billon. It trades at a 7.25% discount to its net asset value. Since 1942 it has been investing in private markets and one of its first equity investments was oil giant Shell (SHEL).

In a sign of the value placed on continuity, over its 150-year history it has had a total of 11 managers, and just three since 1969. Niven has been at the helm since July 2014.

HOW DOES THE TRUST WORK

The trust’s strategy involves owning quoted and unquoted companies with geographic exposure across North American, European and emerging markets.

Niven coordinates a mix of external managers and internal managers from Columbia Threadneedle. So, Invesco runs the emerging markets strategy, while JP Morgan, Barrow, Hanley Mewhinney & Strauss and Columbia Threadneedle run the different elements of its US strategy. Finally, Pantheon Ventures runs the venture capital and growth private equity strategies.

By having a mix of external and internal managers the trust benefits from a broad range of expertise and ensures diversification of assets through its portfolios.

All main geographic regions in the trust’s listed portfolios gained in value last year with North America being the best performer at 27.7%, followed by global strategies with a 17.6% gain and Europe with an 11.3% gain.

A MORE FOCUSED APPROACH

While the trust remains highly diversified, the company has reduced its underlying holdings from 400 to approximately 350. 

Niven says this has been a conscious decision. ‘For many years we have managed a diversified portfolio, but one has to be appropriately diversified. We invest using different strategies with growth, value, quality characteristics in the unlisted and listed space.

‘My belief is in the long run demonstrably high-quality companies outperform the market, companies which are cheap outperform and growth companies also outperform. But performance across these styles can be volatile and inconsistent in the short-term.

‘By blending across these strategies [growth, value and quality] there is a better chance to deliver outperformance and a smoother performance journey [returns] to shareholders rather than over-buying one particular style or theme.’

HOW DOES F&C NAVIGATE THROUGH DIFFICULT TIMES?

Niven tells Shares: ‘We have been combating volatility using diversification and [at the same time] we continue to focus on growth assets.

‘The trust does not invest into assets like government bonds, commodities, or gold, focusing instead on growth assets with exposure to economic and corporate earnings growth.’

Niven has made changes to the trust’s weightings recently including adding to its emerging market position and reducing the trust’s exposure to Japan through derivatives.

The trust’s emerging markets and China position performed well in June gaining from a de-escalation in US-China trade tensions and optimism surrounding Asian technology.

In relation to the US, F&C has called into question whether US exceptionalism will last and thinks tariffs ‘will reduce economic and earnings growth and raise inflation’.

F&C observed in a recent factsheet ‘an erratic and inconsistent approach to US government policy will reduce consumer and corporate confidence and has the potential for lasting damage’.

HOW HAS THE TRUST BEEN DOING?

In 2024, F&C’s portfolio delivered a return of 19.1% to shareholders with the private equity side underperforming during the period.

The listed portfolio returned 20.5% and outperformed the market benchmark driven by a combination of stock selection and asset allocation.

It may be the oldest trust in the world but that does not mean it hasn’t moved with the times. The trust has been investing in themes like AI for some time and this helped deliver strong gains in 2024.

Strong performers in this area include Palo Alto-based company Broadcom (AVGO:NASDAQ), which operates across the semiconductor and infrastructure software space and contract chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM:NYSE).

Niven says: ‘Artificial intelligence presents both opportunities and threats, with the potential to improve productivity but also disrupt existing business models.’

The managers explains the trust has shifted its stance to underweight on the ‘Magnificent Seven’ which, nonetheless, still dominate the trust’s top 10 holdings.

In particular the trust is notably underweight Apple (AAPL:NASDAQ) and Tesla (TSLA:NASDAQ) which in turn have seen their share prices fall by double digits so far this year

RECENT CONTRIBUTORS TO PERFORMANCE

Niven said in his latest update in June the trust’s underweight position in Tesla was a positive contributor to performance.

‘Proposed legislation that was working through the US Congress during June planned to eliminate electric vehicle purchase credits, threatening to reduce Tesla’s profits,’ he says.

Stocks which have performed well in June include Carnival (CCL:NYSE) up 19.2% – a top contributor to excess returns in the trust. The cruise operator raised its annual profit forecast despite broader economic uncertainties.

Over three years the trust has delivered 44.8% to investors (share price total return), over five years 76.6% and over 10 years 202.2%, according to data from the AIC (Association of Investment Companies).

Ongoing charges for the trust have steadily decreased over the past half-decade, meaning a greater proportion of these returns are being enjoyed by investors. In 2024 charges were reduced to 0.45% from 0.49% in 2023.

The trust prides itself in rewarding shareholders and F&C’s board are committed to raising dividends in the long-term. In May, the trust proposed a final dividend of 4.8p, leading to a 15.6p annual payment – an increase of 6.1%.

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