CM For professional investors only. F&C Investment Trust

Transcription

1 CM15949 For professional investors only F&C Investment Trust March 2018

2 Investment risks The value of your investment is dependent on the supply and demand for the shares of the Investment Trust rather than its underlying assets. The value of your investment will not be the same as the value of the Investment Trust's underlying assets. Stock market movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount originally invested. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Where investments are made in emerging markets their potential volatility may increase the risks to the value of and the income from the investment. Political or economic change may be more likely to occur and have a greater effect on the economies and markets of the emerging countries. Smaller companies carry a higher degree of risk and their value can be more sensitive to market movement; their shares may be less liquid and performance may be more volatile. The fund may invest in private equity funds, which are not normally available to individual investors, exposing the fund to the performance, liquidity and valuation issues of these funds. Such funds typically have high minimum investment levels and may restrict or suspend redemptions or repayment to investors. The asset value of these private equity funds and prospects may be more difficult to assess. If markets fall, gearing can magnify the negative impact on performance.

3 150 years of history World s oldest investment trust 12m return on 100 for original investors* A dividend paid every year since years of consecutive dividend rises** 11 managers in 150 years, three since 1969 Started investing in bonds, 95% equity by 1965 First equity investment in 1925 (Shell) Investing in private markets since 1942 Over 100,000 investors, 90%+ retail holders 3.5bn market cap, total assets 4bn Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at For illustrative purposes only. *Source : Newlands Fund Research **Including proposed 2017 dividend 3

4 F&C Investment Trust 150th Anniversary Campaign elements: Press relations > > Partnerships > promote Advertising & promotion Events & internal promotions > recognise access to the confusing world of experience > Events & internal promotions Collateral support Financial education > > 4

5 Final results to 31 December 2017 Share price total return of 21.0%, ahead of market benchmark of 13.8% NAV total return of 16.9% Discount ended 2017 at 4.3% - lowest year end level for over 20 years Net revenue return per share up by 10.4% year-on-year to 11.67p Proposed 5.6% dividend increase for 2017 to 10.4p 150 th annual dividend and 47 th consecutive annual increase. Dividend fully covered by 2017 earnings Private equity produced strong cash flows ( 77.8m net from historic holdings) but lagged listed equity markets Source: F&C Management Limited as at NAV = Net Asset Value; P = Pence 5

6 Discrete performance Percentage growth F&C Investment Trust Share Price TR 21.1% 23.7% 9.0% 13.5% 21.5% F&C Investment Trust NAV 16.8% 23.6% 8.2% 8.9% 21.6% Benchmark 13.8% 29.6% 4.0% 11.3% 21.0% Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at The discrete performance periods are to the end of the respective month each year. Performance shown is net of fees. Benchmark: FTSE All World Total Return Index.. 6

7 2017 total shareholder return of 21.0% 25% 20% 1.8% 0.1% (0.1%) (0.4%) (0.3%) (4.1%) 15% 10% 5% 15.8% 17.7% 17.2% 16.9% 16.9% 21.0% 13.8% 0% Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at NAV = Net Asset Value 7

8 Performance in 2017 Strong performance in absolute terms Good performance from underlying portfolio strategies with most areas exceeding benchmark returns North American managers produced strong relative returns in T Rowe Price (+25.3%) exceeded both market index and growth indices and Barrow Hanley (+6.0%), while lagging the market, outperformed the value index Global Strategies exceeded benchmark returns in all areas. Global Small Cap (+17.9%) performed particularly strongly Japanese equities (+15.7%) performed well while the Emerging Markets component (+25.6%) delivered returns in line with benchmark after underperformance in the second half of the year Europe exceeded index returns on the year (+19.3%) while the UK strategy (10.5%) lagged Private equity delivered returns of 5.9%, behind listed equity returns but continues to exceed listed market returns over longer time periods Source: F&C Management Limited as at

9 Underlying performance in 2017 Allocation to Strategy % Underlying allocation % Benchmark Weighting % Portfolio performance % Benchmark performance % UK North America Europe ex UK Japan Emerging Markets * Developed Pacific Global Strategies Private Equity Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at *MSCI Emerging Markets Benchmark Return MSCI ESG Research Inc. Reproduction by permission. FTSE International Limited ( FTSE ) FTSE

10 Underlying performance over 1,3 and 5 years 1 Year % 3 Year % 5 Year % Return Index Return Index Return Index UK North America Europe ex UK Japan Emerging Markets * * * Global Strategies Private Equity Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at *MSCI Emerging Markets Benchmark Return MSCI ESG Research Inc. Reproduction by permission. FTSE International Limited ( FTSE ) FTSE

11 Revenue and dividends Proposed dividend of 10.4p, an increase of 5.6% 10.4% rise in net revenue return per share in 2017 to 11.67p Special dividends contribution to revenue fell to 2.7m Currency movements were positive for revenue ( 3m estimated) Revenue reserve of 16.8p per share as at 31 December 2017 ( 91.3m) Revenue and dividends per share (p) Intention to deliver another real rise in dividends in Revenue per share Dividend per share Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at

12 Look-through exposure Fund weight by region (inc. Private Equity) Listed equity sector exposure UK 5.7% Developed Pacific 2.9% Liquidity 0.7% Financials Consumer Services 16.9% 25.1% Japan 10.6% Technology 12.4% Emerging Markets 13.1% North America 47.3% Industrials Consumer Goods Healthcare Oil & Gas 4.8% 12.3% 11.4% 10.1% Basic Materials 4.4% Europe ex UK 19.7% Utilities Telecommunications 1.5% 1.1% Source: F&C Management Limited as at

13 Buybacks and discount policy 4.4m shares purchased in 2017, purchasing shares within a 5% discount level Annual buybacks (millions of shares) Good progress in discount in recent years to end the year at 4.3% Board to remove specific numerical discount target for share buybacks Board remains committed to use buybacks to enhance shareholder value and in pursuit of a sustainably low discount in normal market conditions Source: F&C Management Limited as at

14 Performance overview end December 2017 FCIT shareholder return AIC quartile FCIT NAV return AIC quartile Open ended funds return Market benchmark (gross) 1 year 21.0% % % 13.8% 3 years pa 17.7% % % 15.3% 5 years pa 17.6% % % 15.6% Past performance should not be seen as an indication of future performance. Source: F&C Management Limited, Datastream, Morningstar, Association of Investment Companies (AIC) as at Morningstar. All Rights Reserved. Benchmark: FTSE All World Total Return Index. Peer Group: Association of Investment Companies Global. Net of fees. NAV = Net Asset Value; YTD = Year-to-Date. 14

15 Performance overview end February 2018 FCIT shareholder return AIC quartile FCIT NAV return AIC quartile Open ended funds return Market benchmark (gross) YTD 1.0% 2 0.2% 2-0.8% -0.6% 3m 3.6% 1 2.5% 2 0.8% 1.2% 6m 6.1% 2 3.6% 2 2.8% 2.3% 1 year 17.0% % 2 7.5% 7.8% 3 years pa 14.9% % % 13.3% 5 years pa 15.5% % % 12.9% Past performance should not be seen as an indication of future performance. Source: F&C Management Limited, Datastream, Morningstar, Association of Investment Companies (AIC) as at Morningstar. All Rights Reserved. Benchmark: FTSE All World Total Return Index. Peer Group: Association of Investment Companies Global. Net of fees. NAV = Net Asset Value; YTD = Year-to-Date. 15

16 Discrete performance Percentage growth 12m to February F&C Investment Trust Share Price TR 17.0% 34.2% -3.5% 22.4% 10.6% F&C Investment Trust NAV 11.7% 33.3% -0.5% 16.6% 8.9% Benchmark 7.8% 37.7% -2.1% 17.5% 7.4% Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at The discrete performance periods are to the end of the respective month each year. Performance shown is net of fees. Benchmark: FTSE All World Total Return Index. 16

17 I. The (recent) evolution of FCIT 17

18 1. More global Global vs UK equity returns Global Equities UK Equities 100 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Past performance should not be seen as an indication of future performance. Source: F&C Management Limited / Bloomberg as at

19 2. Active approach Strategy Primary Manager Approach % Allocated Holdings Active Share % Regional US Growth Growth US Value Value Europe Fundamental quality value UK Quality growth Japan Quality GARP Emerging Markets Long term quality Global Income Systematic income GARP Smaller Companies Core quality growth Multi-Manager Fund of funds Private Equity Funds Fund of funds n/a Direct Direct n/a Source: F&C Management Limited as at

20 3. Diversified across strategies Risk contribution by strategy Diversification benefit. Source: F&C Management Limited as at

21 4. Recommitment to private equity Future private equity investments will be Focused & opportunistic Primarily invested directly Assessed using BMO global resources Significant agent cost savings as we run off existing holdings 64m in Source: F&C Management Limited as at

22 5. Gearing costs reduced 0-20% permitted gearing, varied between 7-14% since 2012 Net gearing of 260m, 7.2% of net assets Weighted average cost of debt down from 7.1% at end 2013 to 2.5% Gross debt at market value outstanding: 296m 50m at 1.12% (RCF) Y6600m at 2.50% 25m at 2.80% 0.6m at 4.25% Perp $80m at 4.00% 72m at 1.69% 50m at 3.16% Source: F&C Management Limited as at RCF = Revolving Credit Facility.. 22

23 6. Dividend and revenue progression Focus on total return - balance income needs with capital considerations Significant shift from UK to overseas equities created revenue challenge Benefited from strong underlying income growth, reduced interest costs, cashflow from PE (for reinvestment) Commitment to continue real rises in dividends Net revenue return and div per share (p) Revenue Dividends Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at

24 FCIT Since 2014 Returns vs comparators (from July 2014) Discount progression (year-end levels) AIC Median Return % Discount % Share Price TR NAV TR FTSE AW Vanguard ETF IA Median Past performance should not be seen as an indication of future performance. Source: F&C Management Limited as at

25 II. Market backdrop 25

26 Growth is robust Latest Composite PMI Change on year PMI Net change on year 42 UK Japan US Eurozone Germany France Italy -8 Source: BMO Global Asset Management, Bloomberg as at PMI = Purchasing Managers Index. YTD = Year To Date. 26

27 Supporting further gains in earnings S&P earnings upturn (yoy) 50% EPS levels (local currency terms) % 30% 20% 10% 0% -10% -20% -30% -40% Model Estimate S&P m forward EPS EPS INDEX [2003=100] US EM Europe -50% Source: BMO Global Asset Management, Datastream as at January S&P, Copyright 2018 all rights reserved. EPS = Earnings per share. EM = Emerging Markets. YOY = year on year. 27

28 Inflation is not too hot, not too cold Number of OECD countries with low core inflation 35 Number of OECD countries Number of countries in sample Inflation under 2% Inflation under 1% Deflation Source: Minack Advisors as at September OECD = Organisation for Economic Co-operation and Development. 28

29 But wages are gently accelerating in the US Goldman Sachs US Wage Tracker Percent change, year-on-year Percent change, year ago Source: Department of Labor, Federal Reserve Bank of Atlanta, Goldman Sachs Global Investment Research. The Goldman Sachs Wage Tracker attempts to extract the common movement from five data series. Formally, it is the first principle component of the five series. One series, the Atlanta wage Tracker is adjusted. ECI = employment cost index. As at 3 January

30 QE reversal to pressure credit Central Bank Purchases vs IG Yield Investment Grade Yield Change CB Purchases Total CB Purchases Forecast $ IG 12m chg (rhs) Source: Citi as at December CB = Central Bank. IG = Investment Grade. 30

31 and raise volatility US Equity Volatility vs Credit Spread 80% 70% 60% 50% 40% 30% 20% 10% 0% US Equity Volatility US Credit Spread (rhs) Source: Citi as at December

32 leading to higher stock dispersion US Stock Dispersion vs Credit Spread 26% 22% 18% 14% 10% % US Stocks Dispersion US IG Spread (rhs, in bps) 0 Source: Citi as at December

33 potentially narrowing the market further Returns to December 2017 Returns to March % 100% 80% 60% 40% 20% 0% -20% -40% 80% 60% 40% 20% 0% -20% -40% 12m price change 6m price change 12m price change 6m price change Source: BMO Global Asset Management, Datastream as at January S&P, Copyright 2018, all rights reserved. 33

34 Death of dynamism Observations Stagnant productivity, high profits, falling labour share, low investment, high inequality, falling dynamism Explanations Rise in market power (sectoral concentration) Rise in barriers to entry Consequences Weak competition Capital continues to win at expense of labour No reversion to historic mean of profit share Next downturn consolidates position of winners Regulatory agenda Image courtesy of The Economist. 34

35 Rising concentration Change in market concentration by US sector Average Sales and Employment Concentration in Finance PERCENTAGE POINT CHANGE PERCENTAGE POINT CHANGE IN REVENUE SHARE OF 50 LARGEST FIRMS BETWEEN 1997 AND INCREASED REVENUE SHARE OF TOP 50 FIRMS Source: Minack Advisors September Source: Author, Dorn, Katz, Patterson, and Van Reenen The Fall of Labor Share and the Rise of Superstar Firms, Census.. 35

36 Supernormal profitability for the winners S&P ROE Percentiles th 75th 90th 95th Source: Bloomberg, F&C Management Limited as at June ROE = Return on Equity. 36

37 Corporate profits rise Net Profit Margin: Domestic Corporate Business ( ) 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% Source: FRED, BEA, F&C Management Limited as at September Domestic = US. 37

38 Outlook Goldilocks persists. US expansion to become longest on record Equity bull market to continue but regime shift underway Better growth outlook supports performance beyond the US and a weaker dollar Global reflation (and valuation) supports financials, Europe and Japan Emerging Markets due a pause but secular outperformance expected Value to benefit selectively from rising rates while Growth has secular advantages and is not stretched - yet Credit costs should rise long-term borrowings attractive for Trusts Assumption of reversion in corporate profits is misplaced. Next downturn/rising wages will strengthen position of current dominant corporates 38

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40 Contact us F&C Investment Business Limited 80 George Street Edinburgh EH2 3BU Tel: +44 (0) F&C Management Limited Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) Extensive worldwide investment capabilities Total focus on clients Comprehensive range of products and solutions Defined expertise including a suite of specialist investment boutiques 2018 F&C Investments. All rights reserved. F&C Investment Business Limited and F&C Management Limited are both authorised and regulated by the Financial Conduct Authority and members of the F&C Group. The F&C Group is wholly owned by F&C Investments (Europe) Limited, which is itself a wholly owned subsidiary of the Bank of Montreal. F&C Investments and F&C Investments are trading names of both F&C Investment Business Limited and F&C Management Limited. Calls may be recorded UK 40