F&C Investment Trust PLC (the ‘Company’ or ‘F&C’) today announces its results for the six months ended 30 June 2024.
· The net asset value (‘NAV’) total return was +13.2%. This was ahead of the return from the benchmark, the FTSE All-World Index’ which returned +12.0%.
The NAV rose to 1,145.47p from 1,022.07p at 31 December 2023.
· The share price total return was +6.4%.
The share price increased to 1,012.0p from 962.0p at 31 December 2023.
· The Board aims to increase the total dividend again this year. The first interim dividend of 3.6 pence for 2024 to be paid today, 1 August.
The Chairman, Beatrice Hollond, said:
“Equity markets delivered strong returns in the first half, led by technology stocks which were driven by robust earnings growth and ongoing enthusiasm relating to Artificial Intelligence (‘AI’). I am pleased to report that the Company produced a net asset value (‘NAV’) total return of +13.2%, outperforming the return of +12.0% from our benchmark.”
Commenting on the markets, Paul Niven, Fund Manager of F&C, said:
“Equity markets have had an excellent start to 2024, building upon their strong returns delivered in late 2023. A number of the ‘Magnificent Seven’, all of which we hold in our portfolio, were again stand out performers despite rich valuations, still high interest rates and signs of fading US economic exceptionalism.
“Concentration of stocks within the S&P 500 has surged to the highest level since the turn of the century, with the Magnificent Seven now accounting for over 30% of the index. However, recently, performance within the group has been more mixed, with those geared to the AI theme leading.
“F&C remains underweight to the Magnificent Seven, gaining more diversified exposure to the AI theme from holdings in Broadcom, Vertiv Holdings, and Qualcomm. We delivered relative outperformance on our listed holdings despite underweight positions in many of the US stocks which drove the first half rally.
“Outside of the US, key market indices in Japan, Europe and the UK climbed to new record highs as the rally broadened and global economic activity recovered. Emerging Markets were the notable laggard as the Chinese economic recovery continued to disappoint.
“Looking forward, while we remain uncertain of the unfolding economic environment, we do expect that
performance within equities will broaden and that relative value will be an important consideration for prospective 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.
“A narrow market presents both opportunities and risks and we believe that a diversified approach will, in due course, provide better returns, with lower risk, for shareholders.”
The full results statement is attached.
Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.
About FCIT:
· Founded in 1868 – the oldest collective investment trust
· A diversified portfolio provides exposure to most of the world’s stock markets, with exposure to over 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
CHAIRMAN’S STATEMENT
Equity markets delivered strong returns in the first half, led by technology stocks which were driven by robust earnings growth and ongoing enthusiasm relating to Artificial Intelligence (‘AI’). I am pleased to report that the Company produced a net asset value (‘NAV’) total return of +13.2%, outperforming the return of +12.0% from our benchmark, the FTSE All-World Index. There was a general widening in the discount level of investment trust companies across the sector and the Company’s discount moved out from 5.9% to 11.7%. Consequently, the return to shareholders of +6.4% lagged the NAV return.
Our NAV per share ended the period at 1,145.47 pence compared with 1,022.07 pence at the end of 2023. The return from our investment portfolio, i.e. before fees and other effects, of +12.2% exceeded the benchmark return, while higher market interest rates reduced the fair value of our outstanding debt, adding 0.4% to our NAV return. The Company’s gearing (with debt at fair value) fell from 6.3% at the start of the year to 4.9% at the end of the period.
In response to a widening in our discount we increased the scale of share buybacks and bought back 10.2m of shares over the first half of the year. This added approximately 0.2% to our NAV. The Board believes that the relatively wide discount at which we ended the first half does not reflect the strength of our investment proposition for shareholders and remains firmly committed to the use of share buybacks where we see value. We note that our discount has narrowed since the end of June. In addition to the use of share buybacks to aid the management of our discount, we continue to pursue an active marketing programme with the aim of broadening our current shareholder base.
Both Europe and the UK saw an encouraging fall in inflation rates over the first half of the year. UK consumer price inflation fell from 4.0% in December to 2.0% in May while, in June, the European Central Bank cut interest rates for the first time since 2019. US inflation, however, has proved to be ‘stickier’ due to more resilient economic growth, with the US Federal Reserve now expected to cut interest rates later and by less than previously forecast. Sterling fell modestly, by 0.7%, against the US dollar in the first half of 2024. The return from our private equity investments was +6.0%. While it was encouraging to see progress, these returns lagged gains from listed equities. The near-term backdrop for private equity assets remains challenging, particularly given rises in the cost of debt and a slow pace of deal flow. Nonetheless, we have made good returns from our investments in this area over longer periods and there are tentative signs that the environment for private equity is now improving.
INCOME AND DIVIDENDS
We paid a third interim dividend of 3.4 pence per share for the year ended 31 December 2023 in February 2024 and a final dividend of 4.5 pence in May. Our full year 2023 dividend of 14.7 pence per share was fully covered by earnings of 15.83 pence per share and represented an increase of 8.9% on the previous year.
Our net revenue return per share over the first six months of the year rose by 10.9% to 9.64 pence, compared to 8.69 pence over the corresponding period last year. Although sterling was little changed against both the US Dollar and the Euro in the first six months of 2024, it was trading at a higher average level than in the first half of 2023 and this detracted £1.9m from the return. Special dividends totalled £1.2m, down from £2.2m in the first half of 2023.
We expect that our earnings will again cover our full year dividend in 2024. It remains the aspiration of the Board to continue the Company’s track record of delivering rises in dividends which exceed inflation over the long term and we retain a substantial revenue reserve to help meet this objective if required. We have declared a first interim dividend for the current year of 3.6 pence per share to be paid on 1 August 2024. The Board plans to deliver another rise in our total dividend for this year, which will be the 54th consecutive annual rise. We are also continuing our marketing efforts to increase awareness of the benefits of investing in the Company and to attract new investors.
THE BOARD
Tom Joy retired from the Board on 31 March this year after accepting an opportunity to take on a new executive role which precluded him from continuing as a Director of the Company. Tom made a significant contribution since joining the Board in 2021 and we shall miss his considerable investment knowledge and experience in global equity markets. I am delighted that Richard Robinson joined the Board with effect from 3 May 2024. Richard has been the Investment Director of the Paul Hamlyn Foundation since 2009 and was previously Head of Charities & Foundations at Schroders plc. He has held a number of senior positions at Rothschild Asset Management and is a former director of JPMorgan Global Emerging Markets Income Trust plc and Aurora Investment Trust plc.
OUTLOOK
While the fundamental backdrop is constructive and US recession has been avoided, global equity markets, dominated by the US, continue to trade at historically elevated valuation levels. Strong growth in earnings has propelled most of the so-called “Magnificent Seven” group of stocks to new highs but elevated valuations and market concentration remain a concern, with optimistic earnings expectations presenting an additional challenge if investment in AI fails to translate to sustained growth in earnings. Politics will remain an area of focus for investors in 2024 and, while a Labour government with a significant majority may present a more stable backdrop for UK assets, the US and Europe face a period of political uncertainty in the months ahead. This, in conjunction with signs of moderating US growth after a strong period, presents some near-term risk for equity markets.
There remain grounds for optimism, however, including for international equities that have struggled to beat the technology-heavy US market for many years and which potentially stand to benefit from a broadening out of the equity rally. Improving economic prospects and earlier interest rate cuts may provide a near-term tailwind for European and UK equities, while corporate governance reform means that Japan continues to look attractive from a longer-term structural perspective. In addition, there are now signs of progress (in terms of valuation uplifts and increased pace in realisation of investments) in the private equity sector, helped by a pickup in merger and acquisition activity, which should provide further support. Against this background your Manager will continue to adopt a diversified approach and remains focused on longer-term opportunities as they emerge.
Beatrice Hollond
Chairman