Private equity pays off, with 52nd year of dividend increases for F&C

The global trust, a member of interactive investor’s Super 60 list, delivered the strongest returns among its peers in 2022, and upped its income payout by 5.5%. 

F&C Investment Trust (LSE:FCIT), the world’s oldest investment trust, saw its private equity exposure shelter its portfolio from the worst of the volatility that unfolded in 2022.

Its annual results, released this morning, reported a share price total return of -0.9% and a net asset value (NAV) total return of -5.3%. Both fared better than the FTSE All-World index, which lost 7.7%.

The trust provides exposure to most of the world's stock markets, with exposure to just under 400 individual companies across the globe. Its aim is to generate long-term growth in capital and income by investing primarily in an international portfolio of listed equities. 

A ‘dividend hero’, the trust once again raised its income payments, with a 5.5% year-on-year increase. This extends its dividend run to 52 years of consecutive increases.

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Beatrice Hollond, chair of F&C Investment Trust, said the revenue reserves the trust has are substantial, so the company remains “in a very strong position to continue our track record of increasing annual dividends well into the future”.

She added: “F&C's flexible and diversified approach makes us well placed to navigate the changed investment backdrop and we remain confident in the long-term prospects for the company.”

While its dividend track record is impressive, bear in mind that its dividend yield is low, currently 1.4%.

Performance drivers in 2022 included raising cash levels and reducing gearing ahead of stock market declines. The trust also saw its portfolio hold up better than the wider market due to its reduced exposure to growth stocks, which saw their share prices and valuations notably fall in response to rising interest rates.

However, the biggest positive contributor was its private equity exposure. Unlisted stocks, which comprise 12.3% of the portfolio, outperformed listed holdings. The private equity stocks collectively returned 3.6%.

Within the listed portfolio, all regions lost money, but this was softened by the sharp decline in sterling.

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Hollond said: “In contrast to lacklustre returns from listed equities, our private equity holdings had another strong year with both our newer commitments and historic holdings delivering gains in absolute terms.

“While there is typically a lag in recognising changes in valuations of private equity holdings and one must take a long-term perspective in considering results, it is pleasing that our portfolio of unlisted investments held up well in this challenging market environment.”

Commenting on the markets, Paul Niven, fund manager of F&C Investment Trust, said that increases in interest rates has “fundamentally changed the investment environment and we will likely continue to see pressure on parts of the equity market”.

Looking ahead, he is optimistic on the “greater opportunity for performance from markets outside the US and improved prospects from emerging markets, partly driven by valuation differentials”.

Over the past decade, F&C Investment Trust has delivered a total shareholder return of 240.7% (to the end of 2022), equivalent to 13.0% return per year.

Commenting on the results, Dzmitry Lipski, head of funds research at interactive investor, said: “F&C Investment Trust’s globally diversified portfolio of high-quality large cap equities invested for the longer term makes it’s a core good core option for retail investors.

“Exposure to illiquid and unlisted assets proved to be beneficial in the portfolio, and adds diversification in difficult times like last year.”