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Attractive long-term total returns

F&C Investment Trust 29 August 2019 Review
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F&C Investment Trust

Attractive long-term total returns

Investment trusts
Global equities/private equity

29 August 2019

Price

695.0p

Market cap

£3,774m

AUM

£4,303m

NAV*

721.2p

Discount to NAV

3.6%

NAV**

722.0p

Discount to NAV

3.7%

*Excluding income. **Including income. As at 27 August 2019.

Yield

1.6%

Ordinary shares in issue

543.0m

Code

FCIT

Primary exchange

LSE

AIC sector

Global

Benchmark

FTSE All-World

Share price/discount performance

Three-year performance vs index

52-week high/low

737.0p

616.0p

768.6p

626.9p

**Including income.

Gearing

Gross*

9%

Net*

8%

*As at 31 July 2019.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

F&C Investment Trust is a research client of Edison Investment Research Limited

F&C Investment Trust (FCIT) aims to offer a ‘one-stop shop’ for investors looking for diversified equity exposure to both listed and unlisted markets. Over the last 10 years, the trust has delivered annual NAV and share price total returns of 13.6% and 14.4% respectively from a range of both internally and third-party managed strategies. While there has been a prolonged equity bull market for more than a decade since the end of the global financial crisis, FCIT’s manager Paul Niven believes the current environment of easy monetary policy and economic growth is supportive of further share price upside. The trust’s annual dividend has increased for the last 48 consecutive years (current yield of 1.6%).

Discount over 10 years – shareholders have enjoyed a meaningful re-rating

Source: Refinitiv, Edison Investment Research

The market opportunity

Stock market volatility has increased so far in 2019, as market participants grapple with macro issues such as changing monetary policy, slowing economic growth and the potential for a no-deal Brexit. However, over the long term investors have enjoyed higher total returns from equities versus other asset classes such as bonds or cash.

Why consider investing in F&C Investment Trust?

Broad global equity exposure, both listed and private companies.

Distribution paid every year since FCIT’s launch in 1868.

Dividend growth in each of the last 48 consecutive years.

Long-term record of double-digit NAV and share price total returns.

Oldest investment trust, established over 150 years ago.

Distinguished dividend history

FCIT’s shareholders have enjoyed 48 consecutive years of higher dividend payments and the board has committed to another increase (above the rate of UK inflation) for FY19; the trust currently offers a 1.6% dividend yield. FCIT’s board actively manages the discount, by both issuing shares when they regularly trade at a premium and repurchasing them when regularly trading at a discount. Its current 3.7% discount to cum-income NAV compares with the 1.0% to 8.2% range of average discounts over the last one, three, five and 10 years.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

FCIT’s investment objective is to secure long-term growth in capital and income through investing primarily in an internationally diversified portfolio of listed equities, as well as unlisted securities and private equity, with the use of gearing. FCIT’s benchmark is the FTSE All-World Index.

29 July 2019: six-month results ending 30 June 2019. NAV TR +14.4% versus benchmark TR +16.4%. Share price TR +11.7%.

19 June 2019: announcement of 2.9p per share first interim dividend (+7.4% year-on-year).

2 May 2019: announcement that Beatrice Hollond will succeed Simon Fraser as chairman by the end of the year, after a period of transition.

2 April 2019: announcement of issuance of fixed rate senior unsecured private placement notes (funding in June 2019).

Forthcoming

Capital structure

Fund details

AGM

May 2020

Ongoing charges

0.65%

Group

BMO Global Asset Mgmt (BMO)

Final results

March 2020

Net gearing

8%

Manager

Paul Niven

Year end

31 December

Annual mgmt fee

Tiered (see page 8)

Address

Exchange House, Primrose Street London EC2A 2NY

Dividend paid

Aug, Nov, Feb, May

Performance fee

None

Launch date

March 1868

Trust life

Indefinite

Phone

+44 (0)800 136 420

Continuation vote

None

Loan facilities

See page 8

Website

fandcit.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

FCIT pays dividends quarterly. The 2018 total dividend of 11.0p represents the 48th consecutive annual increase.

Renewed annually, FCIT has authority to purchase up to 14.99% and allot up to 5% of issued share capital.

Shareholder base (as at 27 August 2019)

Strategy allocation (including private equity, as at 31 July 2019)

Top 10 holdings (as at 31 July 2019)

Portfolio weight %

Company

Country

Sector

31 July 2019

31 July 2018*

Amazon

US

Consumer services

2.2

2.1

Microsoft

US

Technology

1.9

1.4

PE Investment Holdings 2018

Global

Private equity

1.7

N/A

Alphabet**

US

Technology

1.3

1.2

Facebook

US

Technology

1.3

0.8

UnitedHealth Group

US

Healthcare

1.0

1.1

Anthem

US

Healthcare

1.0

1.0

Comcast

US

Consumer services

0.9

N/A

Visa

US

Financials

0.9

N/A

Dollar General

US

Consumer services

0.8

N/A

Top 10 (% of holdings)

13.0

10.4

Source: F&C Investment Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-July 2018 top 10. **Parent of Google.

Market outlook: Macro overhangs causing volatility

Exhibit 2 (LHS) illustrates the potential benefits of investing overseas: since late 2015, the FTSE All-World index has significantly outpaced the performance of the FTSE All-Share index (both in sterling terms). In recent quarters, global stock markets have seen higher levels of volatility, following a particularly benign period in 2017. During 2018, investors increasingly fretted about the pace and magnitude of US interest rate hikes. However, in early 2019, the US Federal Reserve adopted a more dovish stance in response to slowing economic growth, due in part to the escalation in the trade dispute between the US and China and its effect on the global supply chain. Meanwhile, in the UK the lack of a Brexit resolution is affecting consumer and business sentiment and output.

In terms of valuation, global equities are trading on a 14.5x forward P/E multiple, which is a 6% premium to the 10-year average, led by the dominant US market, which is trading on a 17.2x forward P/E multiple (a 12% premium to its average over the last 10 years). However, given the relatively attractive total returns historically delivered by equities compared with other asset classes such as government bonds and cash, investors with a longer-term view may well be rewarded by taking advantage of any pullbacks in share prices to add to their equity exposure.

Exhibit 2: Equity performances and valuations (last 10 years)

Performance of world and UK indices (£-adjusted)

Datastream indices forward P/E valuations (x)

 

Last

High

Low

10-year
average

Last as % of
average

Europe

12.6

15.5

7.6

12.3

102

UK

11.8

15.7

8.5

12.6

94

US

17.2

19.0

11.2

15.4

112

Japan

12.7

23.3

10.5

14.0

91

Emerging markets

11.5

13.6

9.2

11.5

100

World

14.5

16.3

9.8

13.6

106

Source: Refinitiv, Edison Investment Research. Note: Valuation data as at 28 August 2019.

Fund profile: World’s oldest investment trust

FCIT was launched in 1868, making it the oldest investment trust in the world. The trust has a distinguished dividend history and has paid a distribution every year since launch; the annual dividend has increased in each of the last 48 consecutive years and the board has committed to another increase in FY19. There have only been 11 managers over the trust’s history and lead manager Paul Niven (since 2014) is only the third since 1969. Initially, the trust invested in bonds, but by 1965, 95% of the portfolio was held in equities and the fund has invested in private equity since 1942. FCIT has over 100,000 investors, more than 90% of whom are retail holders. It is one of the largest investment trusts, with more than £4bn of assets under management.

Niven aims to generate long-term growth in capital and income and attractive risk-adjusted returns, from a portfolio that is widely diversified by geography and sector. The trust’s performance is measured against the FTSE All-World index, but while the manager is benchmark aware, he is not constrained by the index allocations (there are no limits on geographic or sector exposures for publicly listed equities). At the time of investment, a maximum 5% of the portfolio may be invested in unlisted securities (excluding private equity). This requires prior board approval, while shareholder approval would be required to increase FCIT’s private equity exposure above 20%. A maximum 10% of the portfolio (at the time of investment) is permitted in a single stock, while up to 5% may be in funds managed by BMO Global Asset Management (subject to board approval). The manager may employ gearing up to a maximum 20% of NAV (8% net gearing at end-July 2019).

Thoughts from Simon Fraser, outgoing chairman

Fraser has announced his retirement from FCIT’s board, effective at the end of this year. He looks back on his 10-year tenure as a director, noting that while there have been many changes, these have been evolutionary, rather than revolutionary. Fraser believes that an independent board is an important feature of an investment trust, and that people should understand what it does behind the scenes. He says that FCIT’s board is very proactive, with a philosophy of constant improvement and innovation, however, well things are going. When Fraser took on the role of chairman in 2010 (having joined the board in 2009), FCIT was in a tougher position following the global financial crisis; it was trading at a c 10% discount, with a higher than anticipated private equity exposure, and an unattractive fee structure (the management fee was fixed, so it had grown as a percentage of assets following significant stock market falls). The trust’s management company also changed hands a number of times both before and during Fraser’s tenure. FCIT’s board decided to undergo an external assessment, focusing on its purpose and strategy; it sought to ensure that the trust is growth and equity oriented, delivering solid returns for small shareholders, with both public and private equity holdings.

One of the initial and most challenging tasks for the board was to restructure the fees and FCIT was one of the first trusts to move to a market cap-based fee structure. It then spent a lot of time on the structure of the management company and on appointing the trust’s current manager, Paul Niven, who has a background in multi-asset/multi-manager investment. Over time, FCIT’s debt has been restructured and is now considerably cheaper, in part due to the repayment of an 11.25% long-term debenture. FCIT historically had a hard discount control mechanism at 10%, which was then softened and the target reduced. There has also been a change in the dividend philosophy, leading to higher annual increases in recent years. At the beginning of 2013, the board moved to a global benchmark, rather than a composite of 40% FTSE All-Share and 60% FTSE World ex-UK indices; at the time, the UK was 30–40% of the portfolio versus the current 5–6%. More recently, the board changed FCIT’s private equity structure to nurture a more flexible, in-house approach, which is also significantly cheaper. All changes made by the board have been undertaken with shareholders in mind, targeting the individual investor. There have also been developments in the marketing of the fund, including a significant focus last year on its 150th anniversary, when the trust’s name was changed from Foreign & Colonial Investment Trust to F&C Investment Trust, which is seen as a more relevant title for the modern world (its ticker is now FCIT rather than FRCL).

The fund manager: Paul Niven

The manager’s view: Late cycle, but further upside potential

Offering his thoughts on the current stage of the investment cycle, Niven says that although there has been a prolonged equity bull market since 2009 following the global financial crisis, he does not believe the end is yet in sight. The manager comments the only big warning sign now is the inverted US yield curve; however, he says that while historical evidence suggests this is a reasonably good predictor of a recession, bank lending, along with liquidity and financial conditions, are all supportive of the cycle extending further. This environment is supported by the US Federal Reserve, which has adopted a more dovish approach. While the investment cycle is late stage, Niven does not foresee a recession in the next six to 12 months. He believes valuations are still reasonable despite the exceptional equity returns in recent years, unless there is a reversion to long-run margin trends, which he considers unlikely. The manager says central banks should remain supportive and economic growth remains robust, which provides a relatively pro-risk environment. Although leverage levels are high, Niven says household balances are not at extremes that would suggest a sharp economic downturn. He says that so far, the recovery has been pretty shallow and consistent, so he believes the downturn – when it comes – is unlikely to be pronounced and deep.

Asset allocation

Investment process: Broad range of investment strategies

Niven aims to generate long-term growth in capital and income from an internationally diversified portfolio of listed equities and private equity. He believes that FCIT’s c 7% private equity exposure helps to reduce risk and limit the volatility of returns and this asset class has delivered higher total returns than listed equities. The manager invests in a range of concentrated strategies from both BMO’s specialist teams and third-party managers (Exhibit 3), offering the diversification benefits of being part of a larger combined portfolio. FCIT’s portfolio is constructed without reference to the geographic and sector weightings of the benchmark FTSE All-World index. Strategy allocations are reviewed regularly and adjusted when deemed appropriate.

Current portfolio positioning

Exhibit 3: FCIT strategy allocations (as at 30 June 2019)

Strategy

Primary manager

Approach

% allocated*

Holdings

Active share (%)**

Regional

US growth

T Rowe Price

Growth

20.8

126

70

US value

Barrow Hanley

Value

16.2

47

82

Europe

BMO Global Asset Management

Fundamental quality value

15.3

43

88

Japan

BMO Global Asset Management

Quality GARP***

7.6

49

72

Emerging markets

LGM

Long-term quality

10.3

39

97

Global

Income

BMO Global Asset Management

Systematic income GARP***

10.8

62

90

Smaller companies

BMO Global Asset Management

Core quality growth

5.7

78

97

Private equity

Funds

HarbourVest/Pantheon

Fund of funds

3.3

16

N/A

Direct

BMO Global Asset Management

Direct

3.4

29

N/A

Source: F&C Investment Trust, Edison Investment Research. Note: *Excludes 6.6% in ‘other’ investments. **Active share is a measure of how a portfolio differs from an index (0% is full index replication and 100% is no overlap with the benchmark). ***GARP: growth at a reasonable price.

At 31 July 2019, 13.0% of FCIT’s portfolio was invested in its top 10 positions, a modestly higher concentration compared with 10.4% a year earlier. The trust’s geographic exposure is shown in Exhibit 4; the notable changes over 12 months to end-July 2019 are a higher weighting in North America (+5.8pp) with a lower pan-European exposure (-3.2pp). Versus the index, the trust is overweight Europe (including the UK), emerging markets and Japan and underweight developed Pacific and North America.

Exhibit 4: Geographic weightings (including private equity, % unless stated)

Portfolio end-July 2019

Portfolio end-July 2018

Change (pp)

Index weight

Active weight vs index (pp)

Trust weight/
index weight (x)

North America

55.6

49.8

5.8

57.6

(2.0)

1.0

Europe inc-UK

21.7

24.9

(3.2)

18.9

2.8

1.1

Emerging markets

11.0

12.5

(1.5)

10.3

0.7

1.1

Japan

8.5

9.5

(1.0)

7.7

0.8

1.1

Developed Pacific

2.0

2.3

(0.3)

5.4

(3.4)

0.4

Liquidity

1.2

1.1

0.1

0.0

1.2

N/A

100.0

100.0

100.0

Source: F&C Investment Trust, Edison Investment Research. Note: Numbers subject to rounding.

FCIT’s primary North American exposure is via T Rowe Price (growth strategy) and Barrow Hanley (value strategy), both shown in Exhibit 3. However, in 2018, Niven also allocated capital to the BMO Disciplined Large Cap Growth strategy; exposure has since been increased and was c 3% of the fund at end-H119. The manager says the trust’s overall US weighting is probably the highest ever; he suggests that unless there is a very sustained move towards value rather than growth stocks, it is unlikely the US will lose its market leadership, so he believes FCIT’s large exposure is appropriate.

Niven has recently removed some sterling hedges. In November 2018, he saw asymmetric risk in terms of sterling from a shareholder perspective given the uncertainty over Brexit. The manager took out a hedge at c $1.27, as if there was a positive Brexit outcome, he would have expected a sharp appreciation of sterling and only 5–6% of the portfolio is held in UK assets. The hedge was removed in Q219, as Niven believes a Brexit outcome leading to a sharp rise in sterling now looks very unlikely.

Performance: Outperformance over mid and long term

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

FTSE All-
World (%)

FTSE All-
Share (%)

FTSE World-
ex-UK (%)

31/07/15

20.3

16.3

12.0

5.4

13.1

31/07/16

11.1

14.0

17.8

3.8

19.1

31/07/17

26.4

20.8

18.5

14.9

18.5

31/07/18

21.2

13.4

12.1

9.2

12.6

31/07/19

3.6

7.7

10.6

1.3

11.5

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

Exhibit 6: Investment trust performance to 31 July 2019

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

In H119 (to 30 June), FCIT’s NAV and share price total returns of +14.4% and +11.7% respectively lagged the +16.4% total return of the FTSE All-World index; although it should be noted that the NAV return, while behind the benchmark, was the highest in more than 20 years. As shown in the waterfall chart below (Exhibit 7), in H119 the portfolio return was +13.8% across listed and unlisted securities. There was a positive impact from gearing, given stock markets were very strong in Q119, while the discount widened as FCIT’s share price performance trailed that of its NAV.

Looking at the portfolio return in more detail, listed equities returned +15.1% and private equity detracted by 1.3pp (having performed relatively strongly in 2018 and contributed positively to FCIT’s NAV and shareholder returns over the long term). Within listed equities, the trust’s European and emerging market exposures outperformed their respective benchmarks, while those in North America, Japan and global strategies underperformed. In North America, FCIT’s growth portfolio managed by T Rowe Price returned +21.3%, which was slightly behind the Russell 1000 Growth index but well ahead of the broad market, while Barrow Hanley’s +14.4% return was behind the broad market and the Russell 1000 Value index. Overall in H119, FCIT’s momentum/growth exposure outperformed, but not by enough to offset the underperformance of value stocks.

Exhibit 7: Performance attribution in H119

Exhibit 8: NAV total return performance relative to benchmark over three years

Source: F&C Investment Trust, Edison Investment Research. Note: *Debt at market value. **Dividends reinvested.

Source: Refinitiv, Edison Investment Research.

Exhibit 7: Performance attribution in H119

Source: F&C Investment Trust, Edison Investment Research. Note: *Debt at market value. **Dividends reinvested.

Exhibit 8: NAV total return performance relative to benchmark over three years

Source: Refinitiv, Edison Investment Research.

FCIT’s relative performance is shown in Exhibits 8 and 9. It has outperformed its benchmark in both NAV and share price terms over three, five and 10 years, while lagging over most of the shorter periods. The potential benefits of investing overseas are highlighted by the trust’s significant outperformance of the FTSE All-Share index over three, five and 10 years.

Exhibit 9: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to blended benchmark*

0.0

(2.4)

(5.7)

(6.3)

8.0

9.5

8.1

NAV relative to blended benchmark*

0.1

(0.5)

(1.7)

(2.7)

0.5

1.1

0.6

Price relative to FTSE All-World

0.0

(2.4)

(5.7)

(6.3)

8.0

9.5

11.4

NAV relative to FTSE All-World

0.1

(0.5)

(1.7)

(2.7)

0.5

1.1

3.7

Price relative to FTSE All-Share

2.2

2.0

(0.8)

2.3

24.9

52.6

53.1

NAV relative to FTSE All-Share

2.3

3.9

3.3

6.3

16.2

41.0

42.5

Price relative to FTSE World ex-UK

(0.2)

(2.9)

(6.2)

(7.1)

6.6

5.9

6.2

NAV relative to FTSE World ex-UK

(0.2)

(1.0)

(2.3)

(3.4)

(0.8)

(2.3)

(1.2)

Source: Refinitiv, Edison Investment Research. Note: Data to end-July 2019. Geometric calculation. *Benchmark prior to 1 January 2013 was a composite of 40% FTSE All-Share and 60% FTSE World ex-UK indices (now FTSE All-World index).

Discount: Wider in more risk-averse environment

As shown in Exhibit 10, having trading at a premium since mid-2018 (for the first time since 1995), in recent months FCIT has traded at a discount. This mirrors an environment of increased stock market volatility as investors grapple with macro uncertainties, such as the escalation in trade tensions between the US and China and the increased possibility of a no-deal Brexit. There is no longer a hard discount control policy, but the board is committed to buying back shares in response to a sustained widening of the discount, while issuing shares when they are regularly trading at a premium. In H119, 1.4m shares were issued, raising £9.3m, while 42k shares were repurchased at a cost of £0.3m (the share base increased by a net 0.3%). In response to a widening discount, the pace of share repurchases has increased following the half-year end (Exhibit 1).

FCIT’s current 3.7% discount to cum-income NAV is at the wider end of the range of a 1.4% premium to a 5.9% discount over the last 12 months. It compares to average discounts of 1.0%, 4.3%, 6.0% and 8.2% over the last one, three, five and 10 years respectively.

Exhibit 10: Share price premium/discount to NAV (including income) over three years (%)

Source: Refinitiv, Edison Investment Research

Capital structure and fees

FCIT is a conventional investment trust with one class of share. There are currently 543.0m ordinary shares in issue, with a further 18.8m held in treasury. At end-H119, FCIT had the following debt: €72m at 1.69% (2022); €42m at 0.93% (2026); £25m at 2.80% (2028); £50m at 3.16% (2031); £75m at 2.92% (2048); £37m at 2.69% (2049); £37m at 2.72% (2059); and a £0.6m 4.25% perpetual debenture. Following a series of refinancings, the trust’s weighted average cost of debt has declined meaningfully from 7.1% at end-2013 to 2.5% at end-H119; Niven says that FCIT now has a very diversified debt profile in terms of maturity and spread of exposures. Gearing up to 20% of NAV is permitted; at end-July 2019, net gearing was 8% (this compares with a range of c 6% to c 16% since 2008).

In FY18, FCIT’s ongoing charges declined by 14bp to 0.65%, helped by maturing private equity exposure, resulting in reduced fees to external managers and a lower allocation to funds. With effect from 1 January 2019, FCIT’s management fees are tiered, charged at 0.35% on the first £3bn market cap, 0.30% between £3bn and £4bn and 0.25% above £4bn, (previously a flat fee of 0.365% of market cap). The trust’s 1.01% total costs in FY18 (including interest expense and transaction charges) were 5bp lower year-on-year.

Dividend policy and record

FCIT has a progressive dividend policy; the annual distribution has increased in each of the last 48 years and a dividend has been paid every year since the trust was launched in 1868. The 11.0p per share FY18 dividend was 5.8% higher year-on-year and was more than covered by revenue. Over the last 10 years, the trust’s annual distribution has compounded at an average annual rate of 5.5% (meaningfully higher than the 2.3% pa average rate of UK inflation over the period). In H119, FCIT’s revenue return was up 3.9% year-on-year to 8.08p per share and the board has announced a first interim dividend of 2.9p per share. It has also committed to another real rise in the FY19 dividend (the 49th consecutive annual increase). At end-H119, the trust had revenue reserves of 21.3p per share, almost double the FY18 total dividend.

Peer group comparison

In Exhibit 11, we highlight the 10 funds in the AIC Global sector that have less than 25% UK exposure. FCIT is the second largest, with a market cap of c £3.8bn. Its NAV total returns are above the average of the selected peer group over 10 years – ranking fifth – broadly in line over one year, while trailing over three and five years. FCIT’s discount is above average and its ongoing charge is in line with the mean, despite paying fees to external managers. In common with the majority of the peers, no performance fee is payable. The trust’s level of net gearing is above average, while its 1.6% dividend yield is in line with the mean of the selected peer group.

Exhibit 11: Selected peer group as at 28 August 2019*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield

F&C Investment Trust

3,773.7

0.4

38.9

80.9

214.3

(4.0)

0.7

No

108

1.6

Alliance Trust

2,610.0

0.2

36.8

74.2

186.6

(3.8)

0.6

No

104

1.8

AVI Global Trust

817.0

(0.6)

37.2

52.8

131.5

(9.6)

0.9

No

110

1.8

EP Global Opportunities

123.9

(6.8)

22.5

42.2

124.0

(6.0)

0.9

No

100

1.9

Manchester & London

155.3

1.1

66.4

107.8

123.3

(2.4)

1.0

No

100

2.6

Martin Currie Global Portfolio

239.5

10.3

47.0

84.0

226.0

(0.5)

0.6

Yes

100

1.5

Mid Wynd International Inv Trust

244.4

8.1

47.4

110.2

268.8

3.5

0.7

No

100

1.0

Monks

1,978.6

1.6

57.7

98.2

215.7

4.8

0.5

No

104

0.2

Scottish Investment Trust

599.7

(5.1)

21.8

51.8

153.0

(9.0)

0.5

No

100

3.2

Scottish Mortgage

7,624.3

(3.9)

73.4

136.5

449.6

(0.8)

0.4

No

107

0.6

Average

1,816.7

0.5

44.9

83.9

209.3

(2.8)

0.7

103

1.6

FCIT rank in sector (10 trusts)

2

5

6

6

5

7

5

2

6

Source: Morningstar, Edison Investment Research. Note: *Performance as at 27 August 2019 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are eight independent non-executive directors on FCIT’s board. The chairman is Simon Fraser (appointed in September 2009 and chairman since May 2010); he has announced his intention to stand down on 31 December 2019 and will be replaced by Beatrice Hollond, who joined the board in September 2017. She will be FCIT’s 14th (and first female) chairman in the trust’s 151-year history. The other six directors and their dates of appointment are Sir Roger Bone (March 2008 and senior independent director since November 2011), Jeffrey Hewitt (September 2010), Sarah Arkle, Nicholas Moakes (both March 2011), Francesca Ecsery (August 2013) and Edward Knapp (July 2016).

General disclaimer and copyright

This report has been commissioned by F&C Investment Trust and prepared and issued by Edison, in consideration of a fee payable by F&C Investment Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by F&C Investment Trust and prepared and issued by Edison, in consideration of a fee payable by F&C Investment Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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