Why F&C underperformed by 10% in the first half of 2023

The Super 60-rated trust saw its discount widen to nearly 10% during the six-month period. 

F&C Investment Trust shareholders are hurting this year, with the £4.6 billion global strategy posting a 2.6% share price loss for the first six months of 2023.

This is just over 10 percentage points behind the 7.5% return for its benchmark, the FTSE All-Share Index.

However, the gap with the benchmark was in part due to a widening of the trust’s discount, moving from 3% to 9.8%. The net asset value (NAV) return of F&C was more encouraging, rising 4.7%.

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Fund manager Paul Niven, who employs a multi-manager approach by outsourcing stock picking to internal Columbia Threadneedle managers as well as external groups, said that stock market returns should broaden in the future, with the biggest gains coming from outside America’s largest technology stocks.

Its these “magnificent seven” tech firms, including Apple, Microsoft and Amazon, that powered global equities higher in the first half of the year.

Niven was underweight these shares as he was worried about high valuations and the impact that rising interest rates would have on economic growth.

He said: “Early in the year, however, after strong relative performance in 2022 we did reduce exposure to large-cap value stocks in the US which, while cheap compared to historic norms, were viewed as at risk from economic slowdown.

“While a US recession did not emerge, there was considerable stress in the banking sector, in part due to recent interest rates rises (as well as questionable management decisions) but the US Federal Reserve acted swiftly to contain risks and alleviate the wider economic impact.”

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Looking forward, Niven says “performance within equities will broaden” and company valuations will be a more important indicator of returns.

“We have a relatively balanced approach within our portfolio between the cheaper, but more cyclically exposed areas of the market, and the higher-growth, more expensive, segments which have exciting prospects but appear fully priced,” he said.

Private equity was another area that held returns back. The trust has 11.8% in private shares, held via specialist fund managers such as Pantheon International (LSE:PIN) and HarbourVest Global Priv Equity (LSE:HVPE)

Niven said: “For our private equity holdings, the value of our investments declined by 4.1%, partly reflecting the impact of these currency movements. The near-term backdrop for the private equity area remains challenging, though we have made good returns from our investments in this area over longer time periods.”

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F&C paid a third interim dividend of 3.2 pence per share for the year ended 31 December 2022 in February 2023 and a final dividend of 3.9 pence in May.

Its full year 2022 dividend of 13.5 pence per share was fully covered by earnings of 13.92 pence per share and represented an increase of 5.5% on the previous year.

F&C shares are up 1% since the halfway point of the year, just below the return to the FTSE All World Index.

The trust is one of interactive investor’s Super 60 investment ideas. Over 10 years, shares are up 133% compared with 122% for its benchmark.