Technology underweight hurts F&C

Global investment trust F&C underperformed its benchmark in 2023, with its caution around Big Tech valuations proving a drag on performance.  

Shares in the trust rose 8.1% last year. The net asset value of the strategy rose 11.3% compared with a 15.1% return for the FTSE All-World Total Return index. Share price underperformance verses the index was exacerbated by the discount widening from 3% to 5.9%. 

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The trust ended 2023 with 38.6% invested in North America compared with 63.4% for its benchmark.  

The US market was one of the best-performing globally last year, with the S&P 500 rising 26%, driven by excitement about artificial intelligence (AI) and demand for computer chips made by the likes of NVIDIA Corp (NASDAQ:NVDA). Therefore its underweight to the US hurt relative performance.

Manager of F&C Paul Niven says that the portfolio pays attention to the valuation of its assets and looks for underpriced opportunities.

He said: “Our diversified portfolio seeks to spread exposure to a range of investment opportunities, balancing consideration of growth prospects alongside the quality and consistency of earnings, while ensuring that we do not overpay for exciting, but potentially highly valued, companies. 

“In coming years, accelerating technological change and an increasing influence from AI will create opportunities and risks, both in those companies which stand to directly benefit from these trends and for those which stand to be challenged. Our approach is well placed to identify and capture both the beneficiaries of these trends and those whose business prospects are underpriced, through our broad and deep consideration of investment opportunities from across the world.” 

As of 31 January 2024, the top stocks in F&C were Microsoft (3.1% compared with 4.25% in the index); Alphabet (2% compared with an index weighting of 2.2%); Broadcom (1.7% compared with 0.73% in the index); Nvidia (1.65% compared with 2% in the index) and Apple (1.4% compared with 3.9% in the index).  

Speaking with interactive investor at the end of 2022, Niven explained why he had been reducing his allocation to technology shares, arguing that they were overvalued.  

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Private equity, which accounts for 11.3% of the fund, was also a drag on performance. It delivered a modest decline in value of 1.7%.

The trust upped its dividend for the 53rd consecutive year, increasing it 7.9% in 2023 compared with 2022.  

Shareholders will receive a final dividend of 4.5p per share on 9 May 2024, bringing the total dividend for 2023 to 14.7p. 

The ongoing charges figure (OCF) declined to 0.49%, down from 0.54% in 2022, as fees paid to fund managers dropped 9.5%.  

Despite underperforming last year, F&C has a good record over the past 10 years. Its total share price return over the past decade is 11.7% a year, which compares favourably with a return of 178.6% (equivalent to 10.8% annually) for its benchmark.  

It is a member of our Super 60 list of recommended funds as a “core” option for investors.