Long Read  

What’s the secret of F&C’s success?

What’s the secret of F&C’s success?
Paul Niven, F&C trust manager and head of asset allocation at Columbia Threadneedle Investments.

The latest rebalancing of the stocks in the FTSE 100 has seen the F&C Investment Trust become only the second conventional trust to reach the blue chip index.

F&C is the oldest investment trust in the world, and the oldest surviving collective investment fund of any kind. Being in the FTSE 100 will likely boost prospects for existing shareholders as passive investment products that track the FTSE 100 will now buy the shares. 

It is now run by Paul Niven for Columbia Threadneedle after that firm acquired BMO GAM, which had previously acquired F&C.

At the end of August the trust was £5.4bn in size, with £630mn of that in private equity and £280mn in cash, with its strong outperformance over the past year and share buy back policy leading to relatively strong share price performance while many other stocks collapsed in value. 

Being a constituent of the FTSE 100 means it will be bought by FTSE 100 tracker funds as opposed to the FTSE 250 trackers, which buy mid caps. As there are far more FTSE 100 trackers than mid-cap trackers, inclusion in the FTSE 100 is likely to boost demand for F&C shares and also the liquidity of the stock. 

Niven says they reduced exposure to small caps earlier this year, and so the listed equity exposure is now in large companies.

“The increase in size of the trust has not led to any significant change in where or how investments are sourced or selected due to our focus on large capitalisation stocks in the listed space and selective private equity investments through both unlisted fund structures and co-investment opportunities.”

Performance over all recent time periods has been strong, with the trust being in the top quartile over one, three and five years. Over the past year to September 9, the trust has lost just over 1 per cent, while the AIC Global sector is down 27 per cent. 

Investment position

That performance can probably be seen in the context of the trust, which invests in global equities, having large exposures to US technology stocks such as Tesla, Amazon and Apple – precisely the sector that has been hit hardest during the equity market turbulence of the past year. 

Niven says that while he is disappointed to have posted a negative return, this may have been minimised by his actions in reducing the amount of borrowing the trust undertook, and instead holding a relatively large position in cash.

“First, we reduced net gearing, raising [around] £300mn of cash in the first half. Second, we have sold a substantial amount of US growth stocks in the past two years, totalling in excess of $800mn (£691mn).

"We started to sell [in the second half of] 2020 due to: a) concerns over relative valuation levels; and b) expectations of a changed macro environment of higher inflation and interest rates. The majority of sales took place in 2021 and we also reduced further in early 2022."