F&C INVESTMENT TRUST PLC
Audited Statement of Results for the year ended 31 December 2023
LEI: 213800W6B18ZHTNG7371
Information disclosed in accordance with DTR 4.1.3
8 March 2024
F&C Investment Trust PLC (‘FCIT’/the ‘Company’) today announces its results for the year ended
31 December 2023.
· FCIT’s share price was 962.0 pence representing a total return of 8.1%, against its benchmark, the FTSE All-World Index, of 15.1%.
· FCIT’s Net Asset Value (“NAV”) total return of 11.3%, with debt at market value, behind the benchmark.
· The Company has delivered a total shareholder return of 203.0% over the ten-year period to the end of 2023, equivalent to 11.7% per annum which compares with a return of 178.6% (equivalent to 10.8% per annum) from our benchmark index.
· The final dividend will be 4.5 pence per share, subject to shareholder approval, and will bring the total dividend for the year to 14.7 pence per share. This will be an 8.9% increase, the 53rd consecutive annual increase.
Commenting on the markets, Paul Niven, Fund Manager said:
“While near term uncertainty over the path of interest rates and economic growth remains high and political events and military conflict present risks, we remain optimistic on the prospects for our holdings over the longer term.”
The Chairman, Beatrice Hollond, commented:
“One of the great strengths of your Company is its robust corporate structure and its ability to take a long-term perspective with respect to investment opportunities.”
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.
Contacts
Paul Niven – Fund Manager
020 3530 6396
Campbell Hood
campbell.hood@columbiathreadneedle.com
07860 911 622
FTI Consulting
columbiathreadneedleuk@fticonsulting.com
020 3727 1888
Chairman’s Statement
Dear Shareholder,
2023 was a good year for global equity markets after significant losses during 2022. For most of the year overall market returns were driven by a handful of the largest US listed companies. As a result, market concentration was the highest it has been in decades. Gains amongst this so-called ‘Magnificent Seven’ group of stocks, which includes Amazon, Apple, Microsoft and Nvidia, each of which are held in our portfolio, were a reversal of the losses seen amongst this cohort in 2022 and were driven, in part, by optimism over Artificial Intelligence (‘AI’).
As well as investor enthusiasm for the AI theme, the global economy performed significantly better than had been feared. Despite further rises in interest rates by major central banks during 2023 the US and global economy avoided recession, delivering a better outcome than had widely been expected at the start of the year. As the year progressed investors had increasing conviction that an economic soft landing would unfold, with economic growth slowing but remaining reasonably robust, and inflation rates would continue to decline in 2024. This led to the view that central banks would be able to embark on a course of meaningful cuts in interest rates and a global recession could be avoided. This propelled equity markets more broadly to strong gains in the latter months of the year, leading to a period of solid returns for our listed portfolio.
Our net asset value (‘NAV’) per share, with debt at market value, rose from 932.1 pence to 1,022.1 pence and our share price rose from 904.0 pence to 962.0 pence. The Company produced a strong NAV total return in absolute terms of +11.3% but underperformed the total return from our benchmark of +15.1%. In common with much of the investment company sector, the discount at which our share price traded relative to NAV widened. It moved from 3.0% at the start of the year to end the year at 5.9%. This widening detracted from shareholder returns, resulting in a share price total return of +8.1%. Following a challenging year for markets in 2022 when we had delivered the strongest shareholder return amongst our peer group of global investment companies, in 2023 our return slightly lagged those peers.
In many respects, performance trends within equity markets during 2023 were a reversal of those of the prior year. Developed equity markets performed well, with the US S&P 500 index delivering dollar returns of greater than 25%, while the Japanese market produced its strongest annual return for decades. The largest capitalised growth stocks which had suffered material losses during 2022 recovered meaningfully despite further rises in interest rates and lingering concerns over inflation. Our portfolio, having navigated volatile markets relatively successfully during the prior year, began 2023 with a greater weighting to more lowly-rated, value stocks relative to the more expensive, faster growing, growth stocks. This stance was adjusted during the early part of the year to provide a more balanced exposure. Growth stocks subsequently delivered material outperformance against cheaper value stocks.
We delivered strong absolute performance from most of our underlying strategies, most notably European equities, but under exposure relative to our benchmark index to some of the very largest stocks in the market in several of our US and global strategies led to modest underperformance against our benchmark index within our listed equity portfolio. Meanwhile, our private equity holdings, in aggregate, lost value over the year and produced returns well behind those of listed equivalents. As our portfolio of investments is predominantly invested in overseas assets, the rise in sterling, which gained 6.0% against the US dollar, was detrimental to absolute returns. In a year when equity markets delivered good positive returns, our gearing added value.
I reported last year that our strong performance had led to our inclusion, for the first time since 2009, in the FTSE 100 index. I am pleased to report that we maintained our position in this index of leading UK listed companies through the year and have now retained our place in the index for the longest period since it was launched 40 years ago. While there is much debate over the challenges facing listed UK companies and the performance delivered by our domestic market, our decision to adopt a truly global approach to consideration of investment opportunities has served shareholders extremely well. Although it is not our primary comparator index, since the FTSE 100 index was launched in 1984 your Company has delivered a cumulative total return of approximately double the return of this index, with a gain of over 7,800% over the forty year period, equivalent to 11.6% total return per annum.
LONG-TERM RESULTS
Our investment objective is the delivery of growth in both capital and income for shareholders over the long-term and our results remain strong. While there have been periods of volatility over shorter-term periods, global equity markets have delivered extremely impressive returns in recent decades.
Over the ten years to the end of 2023 your Company delivered a total shareholder return of +203.0%, equivalent to +11.7% per annum, which compares with a return of +178.6% (equivalent to +10.8% per annum) from our benchmark index. As well as strong returns over the decade, returns for shareholders have been remarkably consistent on an annual basis, with only two years of negative returns, which in each case were less than 1% per annum.
Further demonstrating the importance of taking a long-term perspective to investment returns, over the twenty-year period to 31 December 2023 the Company’s NAV return was +561.8%, equivalent to +9.9% per annum. Our NAV capital-only return over the past twenty years was +410.3% (8.5% per annum) and our shareholder total return was 667.9%, or 10.7% per annum. Dividends paid to shareholders have risen by 5.0% per annum over the past decade and by 7.1% over the past twenty years. Such results continue to demonstrate the importance of compounding income and capital gains over long periods in the process of value creation for shareholders.
FIFTY THIRD CONSECUTIVE ANNUAL DIVIDEND INCREASE
It was another positive year for our earnings, with our gross income exceeding £100m for the first time and our net return rising to another record high of £81.7m. Special dividends increased to £4.4m (2022: £1.6m). The impact of currency movements reduced our income by £0.6m (2022: +£4.9m). Our Net Revenue Return per share rose by 13.7%, to 15.83 pence, from 13.92 pence per share in 2022. This is a lower rate of increase than the previous year but, nonetheless, represents another period of robust growth in our income.
Inflation remained elevated, particularly in the early part of the year, but began to decline at a relatively brisk pace during the second half of the year. Indeed, the annual rate of inflation (as measured by the Consumer Price Index) fell to 4.0% by the end of the year, less than half that of the 10.5% level seen at the end of 2022.
It remains the ambition of the Board to deliver real rises in dividends for shareholders over the long-term that are sustainable. I am therefore pleased to report another rise in the proposed annual dividend which will again be fully covered by our revenue. Subject to approval at the Annual General Meeting (‘AGM’), shareholders will receive a final dividend of 4.5 pence per share on 9 May 2024, bringing the total dividend for 2023 to 14.7 pence: an increase of 8.9% over that of 2022. The increase compares to the 4.0% rate of inflation and means that the growth in our total dividend has exceeded the UK inflation rate over three, five and ten years. Indeed, the growth in our dividends over the past decade, at 63.3%, is almost double that of UK inflation over the equivalent period. Furthermore, as well as being our fifty-third consecutive rise in annual dividends, our full year 2023 dividend is our one hundred and fifty-sixth annual dividend payment.
We continue to benefit from a strong financial position with respect to both our revenue reserve (£107.3m), which represents almost one year of dividend payments to shareholders, and our capital reserves which stood at £4.66bn at the year end. We therefore remain very well placed to continue our track record of increasing annual dividends well into the future.
COMPANY RATING AND EFFICIENCY
Since the Covid-19 pandemic, your Company’s shares have generally traded at a discount relative to the NAV. They did, however, trade at a premium rating once again in the early part of the year but in common with the wider investment company sector the discount widened over 2023. Consequently, we bought back a total of 8.6m shares into treasury as part of our commitment towards achieving a sustainably low deviation between our share price and NAV as well as reducing the volatility of the discount. Our discount averaged 6.6% over 2023 and ended the year at 5.9%.
| Contributors to total return in 2023 | % |
| Portfolio return | 11.7 |
| Management fees | (0.4) |
| Interest and other Expenses | (0.4) |
| Buy backs | 0.2 |
| Change of value of debt | (0.1) |
| Gearing/other | 0.3 |
| NAV total return | 11.3 |
| Change in share price discount | (3.2) |
| Share price total return | 8.1 |
| FTSE All-World total return | 15.1 |
Source: Columbia Threadneedle Investments
Our Ongoing Charges figure declined to 0.49%, down from 0.54% in 2022. Management fees declined by 9.5%, reflecting the benefits of firstly our revised fee arrangement with Columbia Threadneedle Investments (0.3% on our market capitalisation up to £4 billion and at 0.25% thereafter), secondly a lower level of equity assets managed by third party managers and thirdly a lower fee arrangement with JPMorgan, our newly appointed US large cap growth manager. The Board remains focused on delivering value for money for shareholders as part of its performance objectives.
BORROWINGS
We entered 2023 with £244m of cash and cash equivalents, reflecting the impact of long-term borrowings which we had drawn but not invested during 2022 and the relatively cautious view of our Fund Manager. We did not undertake any new borrowings over the course of the year, but we invested some of our cash. Our overall borrowings stood at £581.0m at the end of the year, meaning that our effective gearing level (with debt at par and including our £80m holding of Government bonds as part of our investment portfolio) rose to 9.9% from 7.3% at the start of the year.
The Company remains exceptionally well positioned with respect to long-term borrowings, which (excluding our very small perpetual debenture) we have put in place with maturities out to 2061 and have a blended fixed interest rate of approximately 2.4%. Low interest rates present a low hurdle for our investments held against these borrowings to add value for shareholders over the life of the loans.
F&C INVESTMENT TRUST LECTURE
Following the success of the lectures that the Company sponsored in 2018, 2020 and 2022, I am pleased to advise that the Company will again be sponsoring a lecture this year. The lecture will be held at The Nobu Hotel, London on 6 June 2024, with the theme “Social Change and Future Generations ” and will feature thought-provoking presentations from two renowned speakers as well as information on the Company’s investment approach from our Fund Manager, Paul Niven.
As tickets will be limited, they will be made available to shareholders and the public via a ballot, with successful applicants selected at random. Video clips will be made available to everyone on the Company’s website following the event.
BOARD COMPOSITION
Anuradha (Anu) Chugh was appointed to the Board on 1 July 2023, replacing Francesca Ecsery who retired from the Board at the conclusion of the 2023 AGM. Anu’s appointment continues our succession planning which aims to ensure that we maintain the highest levels of skills and experience on the Board in order to deliver the Company’s objective.
I am sorry to report that Tom Joy will step down from the Board on 31 March. Tom has accepted an opportunity to take a new executive role which precludes him from continuing as a Director of the Company. We shall miss Tom’s considerable investment knowledge and experience in global equity markets. The process to recruit his successor is already under way and we expect to make an announcement at, or shortly after, the AGM.
ANNUAL GENERAL MEETING
This year’s AGM will again be a “hybrid” meeting, which will enable shareholders who cannot attend in person to view the AGM online and to participate by asking questions and voting if they wish. Full details of how to do so are set out in the letter that accompanies your Form of Proxy or Form of Direction.
Voting will be conducted by way of a poll and you are requested to lodge your votes ahead of the meeting by completing your Form of Proxy or Form of Direction in accordance with the instructions. Its completion and return will not preclude you from attending the meeting and voting in person. If you are unable to attend the AGM, you are requested to submit any questions you may have with regard to the resolutions proposed at the AGM, or the performance of the Company, in advance of the meeting to fcitagm@columbiathreadneedle.com. Following the AGM, the Fund Manager’s presentation will be available on the Company’s website fandc.com.
OUTLOOK
2023 saw a reversal of many of the performance trends which had dominated equity markets in 2022. The renewed optimism in large capitalisation growth stocks has pushed US equity market valuations to high levels. It is important to recognise, however, that the high valuation levels are largely a function of the small number of exceptional companies which hold dominant market positions in segments of the market which have enjoyed rapid growth and which provide exciting growth prospects for investors going forward.
While economic growth is slowing it currently seems that the outlook for the global economy looking into 2024 and beyond is significantly better than had been feared. Inflation should continue to moderate, falling closer to central banks’ targets and the interest rate cuts which markets are now pricing in should materialise as we move through this year. With a reasonable outlook for corporate earnings this backdrop presents a generally more positive fundamental picture for global equities.
As usual, however, markets face numerous risks. Market valuations, while concentrated in a specific segment of the market, leave limited scope for disappointment if inflation and interest rates remain higher, or corporate earnings prove less robust, than expected. Furthermore, conflict in both Ukraine and the Middle East present ongoing risks to wider economic fundamentals, primarily through any potential impact on commodity prices. Globally the large number of elections taking place in 2024 also present scope for uncertainty and impact on investor sentiment. In particular the US Presidential election in November is likely to prove a point of focus as we move through the year.
One of the great strengths of your Company is its robust corporate structure and its ability to take a long-term perspective with respect to investment opportunities. While interest rate rises have recently presented challenges in the form of increased costs for those companies which needed to refinance their debt, our long-dated and diversified fixed rate loans provide extremely low rates of funding for our investments. Our dividend, set to rise for the fifty-third consecutive year, is covered by our earnings and we continue to hold significant revenue reserves which should help us to meet our aspiration of delivering rises in dividends in real terms in coming years. Technological advancements in AI and related areas are creating great excitement and significant opportunity for investors. There are also signs that market performance is broadening beyond the dominant (and highly valued) few which should benefit our diversified approach.
Our Private Equity portfolio, which is predominantly focused on mid-market opportunities, has largely avoided exposure to some of the more speculative areas of the market in the last few years and our recent Growth and Venture Capital investments remain very early in terms of their programme. While exits within the private markets space have slowed materially, we continue to see good opportunities in terms of both primary and secondary investment.
There remains uncertainty with respect to the near term economic and political outlook and we expect an element of volatility in both bond and equity markets as inflation and interest rate expectations adjust over 2024 and as investors assess the implications of fast-evolving trends in AI and technology. Nonetheless, we remain confident that our long-term focus and diversified approach will continue to serve shareholders well in terms of pursuit of our objective of delivering growth in capital and income.
Beatrice Hollond
Chairman, 7 March 2024