Stock picking pays off, but discount mars share price gains

In 2024, F&C Investment Trust Ord (LSE:FCIT) returned 21% on a net asset value (NAV) basis, versus a benchmark (FTSE All World) return of 19.3%. This NAV return was supported by the trust’s moderate level of gearing, which added to returns, as well a weakening of sterling versus the dollar being positive for returns.

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The share price return of 16.9% underperformed the benchmark as the discount of FCIT widened to just over 9% at year end.

The numbers in detail (for financial year to 31 December 2024)

Net Asset Value (NAV) Return: +21%
Share Price Total Return: +16.9%
Benchmark Return: +19.3%
Premium/Discount: -9.2% (vs -5.9% in prior year)
Full-Year Dividend: 15.6p (+6.1% vs prior year)
Net Gearing: 4.8% (vs 6.1% in prior year)

Outlook

The UK’s oldest investment trust’s outlook balances the enthusiasm investors feel towards expansionary US policy and tax cuts, with the concerns that the new administration brings regarding tariffs and foreign policy – which could be a headwind to investor sentiment in the coming year. FCIT was established in 1868.

Following a second year of equity market returns being dominated by a select set of companies, F&C add another voice to the commonly held belief that returns across equity markets will see some broadening out in the near term.

Discount

Having begun the year at close to a -6% discount, the trust’s share price ended the period at a -9.2% discount to NAV, with progress being made already in 2025 in narrowing this.

Portfolio

FCIT’s multi-manager approach retains a stylistic neutrality that is facilitated by fund manager Paul Niven’s balanced allocation to growth, value and quality managers across the portfolio. While most of the managers are in-house (Columbia Threadneedle), there are a few exceptions where external managers are employed.

The portfolio has long held an underweight position in US equities (making long-term outperformance the more impressive), however the allocation of 64.5% diverged less from the benchmark (67.2%) than in years past (although some of this exposure includes unlisted assets).

Niven and the underlying managers have not shied away from those “Magnificent Seven” companies that drove the benchmark in 2024 and 2023, but these positions do form relative underweights versus the benchmark.

Unlisted assets

A notable off-benchmark position is the private equity/unlisted assets in the portfolio, which represent circa 11% of assets (little changed versus last year). The focus here is predominantly on mid-market opportunities, with most assets managed by Columbia Threadneedle Investments, with a small amount of venture capital assets managed by Pantheon.

Gearing

Borrowing was not increased during the year, and thus fell as a proportion of the portfolio. The current level of gearing stands at c.4%. FCIT benefits from diversified borrowing arrangements offering access to leverage over the long-term at favourable borrowing rates.

Dividend

With a final proposed dividend of 15.6p (subject to approval), the trust will achieve dividend growth of over 6% and a 54th consecutive year of dividend increases, making it one of the longest-running dividend heroes.

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Ongoing charge

A positive development is that of a reduced yearly ongoing charge, from 0.49% to 0.45%.

Its tiered fee structure has been further improved to offer a fee of just 0.3% on the first £3.5 billion assets (falling to £3 billion in 2026), and 0.25% on the next £2.5 billion.

A new tier of just 0.2% has been agreed for assets above £6 billion, passing on economies of scale to shareholders as the trust grows. The fee is paid on the basis of market capitalisation, not net asset value, incentivising the reduction of any discount in the share price.

F&C’s current market capitalisation is just over £5.3 billion.

A common critique of multi-manager strategies is a potentially higher cost, but this is not the case for FCIT, which offers a very competitive fee for an actively managed strategy compared with either closed or open-ended peers, especially when considering the more esoteric exposure to unlisted assets.

ii View

While the US market dominated global equity returns in 2024 and continued to be driven largely by a select set of large-cap stocks, it’s positive that FCIT’s more diversified multi-manager portfolio succeeded in outperforming the benchmark in NAV terms.  

Despite the exceptional strength of US growth companies in 2024, outperformance came from both FCIT’s US allocation, which is spread across growth, value and quality, as well as from other regions such as European and Japanese equities.

The trust’s private equity portfolio also performed positively, returning c.10%, but undershooting public equity returns. While this slightly dampened relative performance, the unlisted allocation offers a diversifying exposure and it’s encouraging to see an increase in realisations during the period following weak performance and limited exits from the private portfolio in 2023.

The effects of gearing also enhanced performance and, thanks to FCIT’s favourable borrowing facilities, easily offset the associated financing costs. Investors, however, may have been slightly disappointed by the effects of a widening discount that weighed on price returns for the year – although this was relatively in keeping with peers. While the board was proactive in buying back a significant number of shares (5% of issued share capital), an action that was supportive for NAV, the discount nonetheless ended the period at -9.2%. It is notable that in the months since period-end, the discount has returned to mid-single digits, supporting a return throughout 2025 that has held up impressively versus index and peers.

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Alongside the trust’s objective of capital growth is that of delivering a growing income. Assuming approval in the coming months, FCIT’s proposed dividend of 15.6p will mark a 54th consecutive year of growth and, importantly, this dividend will be easily covered by income generated by the portfolio in the year, while future dividends are solidified by the trust’s sizable revenue reserve. With a yield of around 1.3%, the dividend forms a small but historically consistent component of FCIT’s overall total return.

Equity markets in 2025 have experienced a great deal of volatility stemming predominantly from political factors in the US. While FCIT has long maintained a broader geographic diversification than global indices, the trust’s still substantial underlying exposure (c.64%) to the US, combined with a modest level of gearing means investors ought not expect to be immune from near-term equity market shocks.

However, overall the trust continues to offer a well-managed and compelling one-stop solution for investing in global equity markets, both public and private, over the long run.

FCIT retains an impressive track record above its index and peer group under Niven’s management and, as one of relatively few investment trusts that form part of the FTSE 100 index, boasts good scale, which, as seen by the continued reduction in fees, has delivered tangible benefits for shareholders. The trust holds a position on ii’s Super 60 rated list as a global equity option.