Why consider FRGT?

FRGT is one of 11 companies in the AIC Global sector and is differentiated by its concentrated portfolio of quality growth names. It is a straightforward trust with no derivatives and no gearing and its board employs a zero-discount policy, aiming to ensure that its share price trades close to NAV in normal market conditions. Annual dividends have been maintained at 4.20p per share since FY17 using revenue and significant capital reserves to supplement income when required.

In recent years FRGT’s performance has been disappointing, broadly due to owning growth stocks that derated in a rising interest rate environment and having insufficient exposure to the ‘Magnificent Seven’ large-cap technology stocks, which investors seemed to view as the only game in town. However, over the long term, the manager’s in-depth, fundamental stock selection approach has been a winning strategy. Osmani is optimistic that stock market leadership will broaden out and investors will focus once again on company fundamentals, rather than share price momentum in a narrow group of stocks. He highlights unloved areas of the market where FRGT has meaningful overweight exposures: healthcare, semiconductors and European companies.

Now could be an opportune time to look at this trust. Given its concentrated portfolio of just 31 holdings, an improvement in one or more of its favoured investment areas could see FRGT’s relative performance snap back very quickly.

FRGT: Quality growth approach is successful over the long term

FRGT’s manager seeks high-quality growth names, which in essence are companies with strong industry, financial and governance attributes that are trading on reasonable valuations. An ideal candidate should have a dominant position in an industry that has high barriers to entry and low disruption risk, thereby benefiting from strong pricing power. The company should have structural growth prospects, be generating high returns on invested capital, have compounding cash flows and be led by a quality management team that fosters a strong corporate culture within the business.

The outlook for FRGT’s relative performance is looking brighter as stock market leadership broadens out and investors once more focus on company fundamentals, which have been the long-term driver of stock market returns. If the global economy weakens, high-quality companies with resilient earnings and cash flow growth should perform relatively well.

Recent development

On 22 May 2025, FRGT’s board announced that due to the retirement of the Martin Currie brand, effective on 12 July 2025, the GLTU team will join Franklin Templeton’s FEG, with FEG’s CIO, Jonathan Curtis, becoming the trust’s co-manager. In the meantime, Osmani and Curtis will work closely together to ensure a smooth transition. Curtis has more than 30 years of industry experience and as FEG’s executive vice president and CIO has oversight of investment teams that manage equity and convertibles strategies, along with FEG’s research and venture capital teams. FEG is headquartered in the middle of Silicon Valley, and the team has in-depth expertise in managing global, US and sector-specific strategies across the style and capitalisation spectrums. At the end of 2024, FEG had more than $130bn of assets under management.

Continuous improvement in the investment process

Over time, there are continuous improvements made to FRGT’s investment process. As 2024 was a difficult year for performance, improving the process was an increased area of focus:

• A greater efficiency from screening, which provides an earlier indication of earnings and share price trends.
• An improved research pipeline generation, with a higher number of new stock ideas, leads to increased tension to get a new name in the portfolio; hence, the portfolio quality should be constantly upgraded.
• Enhanced research capacity, as two new analysts have been hired and the GLTU team is engaging with additional sell-side firms. The team will officially join the FEG (which covers the whole US market) in July 2025.
• Increased focus on earnings risk assessment (both short- and long-term risks), as avoiding earnings misses can greatly improve performance.
• Better emphasis on key thesis indicators (KTIs), which provide a timelier identification of operational deviations away from the core investment thesis. Stocks are ranked on a scale of one (lowest risk) to five (highest risk).
• A sharpened sell discipline, which involves a faster and lower tolerance review of stocks on the ‘hospital list’. There is a maximum of two weeks to decide whether a holding with a high KTI deserves to remain in the portfolio.

Focus on healthcare, FRGT’s largest overweight sector versus the benchmark

Healthcare is an unloved sector, which the manager believes has the potential to perform relatively better. It is the largest active bet in the portfolio, with a weighting more than 15pp higher than the index. Osmani explains that the healthcare sector has favourable demand and earnings growth characteristics, and also has valuation support. However, the sector is underperforming due to perceived political risk. Although the manager expects increased tariffs to be levied on drugs, he suggests that an announcement could be a market-clearing event by removing uncertainty. Osmani also points to the biotech sector, where leading indicators are improving, such as an increase in available funding and an acceleration in the number of new clinical trials.

Within FRGT’s healthcare holdings are three different categories: stable growth (c 50%) – AstraZeneca, Novo Nordisk, CSL, ResMed and Coloplast; defensive growth (c 25% in animal health) – Idexx and Zoetis; and R&D-driven growth (c 25%) – Sartorius Stedim, Mettler Toledo and Veeva.

Osmani’s perspectives on the current investment backdrop

The manager cautions that any predictions for 2025 are dependent on US President Trump’s policy announcements. Many fund managers were wrong-footed by his widespread introduction of larger-than-expected tariffs on Liberation Day on 2 April 2025, which has led to a significant deterioration in the macroeconomic outlook. Osmani notes that consensus growth expectations have been revised down, and although he does not expect a global recession, it may well feel like one. The manager suggests that even if Trump backtracks on tariffs, his actions have already negatively affected corporate and consumer confidence, which are unlikely to return to prior levels; hence, businesses will be more prudent regarding geographic allocation of capital. Increased uncertainty in response to reductions in economic activity could mean markets remain choppy.

Regarding monetary policy, Osmani says that Jerome Powell, the chair of the US Federal Reserve, is in a wait-and-see mode; he will not want to make any hasty moves that will dent his credibility. The manager believes that tariffs will be inflationary, hence central banks are more hawkish, and corporate earnings estimates will need to come down further. However, Osmani suggests that currency moves and some tariffs being passed on to the consumer may help to avert a recession.

The trust retains an overweight allocation to Europe, where interest rates are being reduced and valuations are more supportive than they are in the US. There are now fund flows out of the US, which had benefited from a view of US exceptionalism. Compared with other regions, the US is seeing larger GDP and earnings downgrades, and has a more hawkish central bank. Osmani is continuing to focus on companies with pricing power, such as Ferrari. He reports that the company is facing a 25% tariff, and is increasing prices by 10%, so it is sharing the tariff with its customers; however, Ferrari’s new models are likely to be priced upwards and special editions are 45–50% more expensive than prior models.

In an environment of lower growth estimates, the manager reiterates the importance of focusing on companies with structural growth opportunities. He says that the three long-term mega themes of demographic changes, the future of technology and resource scarcity remain valid. However, in this environment, financial strength becomes more important, so there is a more intense focus on the analysis of companies’ debt levels and repayment schedules. Osmani highlights the importance of business resilience. While there is some degree of cyclicality in the portfolio, investee companies tend to be those that are relatively immune to the cycle, such as specialist industrial machinery firm Atlas Copco, luxury goods company Moncler, which has strong brand management and green field opportunities, and L’Oréal, which is exposed to Chinese economic weakness, but has good pricing power across a wide range of cosmetic brands.

FRGT’s portfolio breakdown and recent transactions

At the end of April 2025, FRGT’s portfolio had 31 holdings, with the top 10 making up 47.1%, which was a lower concentration compared with 51.7% 12 months earlier; eight names were common to both periods. Of note, NVIDIA is no longer the largest position in the portfolio as the ‘Magnificent Seven’ stocks came under selling pressure following Trump’s tariff announcements. However, the trust retains an overweight position in technology, which is primarily in semiconductors as the industry is going through an AI capex-fuelled super cycle. NVIDIA is well positioned to capitalise on semiconductor industry growth.

All of FRGT’s sector and geographic allocations are a result of bottom-up stock selection. In the 12 months to the end of April 2025, the largest changes in the trust’s sector weightings were a new 3.6% allocation to communication services and lower weightings in industrials and consumer staples (both -3.4pp). As discussed above, FRGT’s largest positive active weight is healthcare (+16.2pp), while the largest underweight is financials (-8.1pp). The three sectors where the trust has no exposure (energy, utilities and real estate) together made up 8.6% of the MSCI AC World Index at the end of April 2025.

In terms of FRGT’s geographic exposure, although the US allocation has increased in the year to the end of April 2025, the trust remains underweight versus the benchmark (c 65% in the US). It also has no exposure to Japan, which is the second largest weighting in the MSCI AC World Index (c 5% in Japan).

Recent portfolio activity

In keeping with the tighter sell discipline discussed earlier, the manager has exited the low-conviction positions. He sold Estée Lauder and Pernod Ricard as he considers their brands are more challenged and less resilient. Estée Lauder opted for an internal, rather than an external, CEO and has a high cost base. For Pernod Ricard, alcohol businesses are facing demand headwinds due to health concerns and have high tariff risks. Croda is experiencing a tough trading environment. Illumina is exposed to healthcare funding costs. For Kering, the manager thought that changing the creative director at Gucci was indicative that the brand is still having problems. Osmani highlights the importance of getting rid of unsuccessful positions in the portfolio.

Against these sales are a series of new holdings. Deckers Outdoors owns the HOKA and UGG brands, which have high consumer appeal; the business momentum is expected to continue. While Chipotle Mexican Grill is a consumer discretionary stock, the company offers a reasonably priced menu with natural ingredients, and is growing its store base. Meta Platforms is viewed as an AI beneficiary. The company is well positioned to harness the opportunities in the fickle advertising industry as META offers better returns on customers’ advertising spend. Apple is now in the portfolio but with a neutral weighting ahead of a delayed upgrade cycle, which will include an AI-enabled handset. Constellation Software operates like a private equity company, adding new businesses to its portfolio that operate under a central umbrella. Some acquired companies operate independently, while others need improvements. Constellation software is a niche business that steadily creates value. AstraZeneca has valuation support and what the manager considers to be a good range of potentially positive pipeline news flow.

Performance: Goodbye 2024, onward and upward for 2025

There is a wide range of market caps in the AIC Global sector, with FRGT being the second smallest. Its performance has struggled versus its peers due to prolonged style headwinds. Between Q321 and Q422, growth stocks underperformed during an environment of rising interest rates. In 2024, the trust’s relative performance took another leg down due to a below-market exposure to the ‘Magnificent Seven’ stocks, which contributed to a large part of the US market’s above-average return during the year. It is worth remembering that outside of November 2020 to November 2024, FRGT was ungeared, which is likely to have been a hindrance to the trust’s performance in a rising market.

At 3 June 2025, FRGT had the second-narrowest discount in the sector, where no trusts were trading at a premium. It has a modestly above-average ongoing charge (some of the much larger funds have a lower fee structure), no gearing and given the trust’s focus on capital growth rather than income, it has a dividend yield that is below the mean.

FRGT’s FY25 relative performance was disappointing, with NAV and share price total returns of +7.3% and +10.1% respectively, which lagged the benchmark’s +23.7% total return. The overweight exposure to healthcare stocks was a notable detractor from the trust’s returns. In terms of stocks, positive contributions included NVIDIA, which regularly surpassed consensus expectations during the year, and the showcasing of its Grace-Blackwell Superchip illustrated the company’s competitive lead; fintech platform Adyen experienced a sustained rebound in its top line growth; and Canada-based Constellation Software continued to allocate capital effectively as part of its acquisition-led business model. Stocks that detracted from returns included: Novo Nordisk, whose trial data for its next-generation oral weight-loss drug Cagrisema was at the low end of expectations, although there was an issue with the trial design that may have limited the drug’s potential. A follow-up trial will take 12 months and leads to questions about Novo’s management execution; Estée Lauder’s business was negatively affected by Chinese economic weakness, and the appointment of an internal rather than an external new CEO was seen as a disappointment; L’Oréal experienced weak consumer demand in China and the rest of Asia, along with increased competition, currency headwinds, inflationary pressure and a higher tax charge.

FRGT’s upside/downside analysis

The trust’s cumulative upside/downside capture analysis over the last decade is shown in Exhibit 11. Its upside capture rate of 107% suggests that the trust is likely to outperform a rising global equity market by around 7%. FRGT’s downside capture is much larger at 138%, implying that the trust is likely to underperform by nearly 40% during periods of market weakness. The downside capture rate increased meaningfully during 2022, as rising interest rates hurt the performance of growth stocks.

Dividends: Annual dividends held flat since FY17

FRGT has made a 4.20p per share annual distribution for the last nine financial years. These were made up of three quarterly payments of 0.90p per share in July, October and January, with a larger 1.50p per share payment in April. For FY25, with income of 2.01p per share (-15.2% year-on-year), the dividend was 0.48x covered. The trust has considerable distributable reserves: c £217k in revenue and c £151.2m in capital, which combined equate to around 60x the annual dividend payment.

Valuation: Actively managed zero-discount policy

The trust’s shares are trading at a 1.8% discount to cum-income NAV, which compares with a range of a 2.2% premium to a 7.1% discount over the last three years. Over the last one, three, five and 10 years, the trust traded on average discounts of 2.1%, 1.7%, 0.9% and 0.7% respectively.

FRGT’s board has employed a zero-discount policy since 2013, aiming to ensure that, in normal market conditions, the trust’s shares trade close to NAV. Renewed annually, the board has authority to repurchase up to 14.99% of FRGT’s shares and allot up to 10% of its issued share capital to manage a discount or premium. In FY25, c 10.5m shares (c 14.8% of the FY24 share base) were repurchased and held in treasury, at a cost of c £39.2m.

Fund profile: High-conviction global equity portfolio

Launched in March 1999 as the Martin Currie Global Portfolio Trust, FRGT is listed on the Main Market of the London Stock Exchange. Zehrid Osmani, who has 25+ years of investment experience, became lead manager on 1 July 2018, alongside Tom Walker as co-manager; Osmani became sole manager on 1 October 2018. He was formerly a senior portfolio manager and head of European equities research at BlackRock, with a proven track record in fundamental research and unconstrained investment.

FRGT’s objective is to generate a total return in excess of the total return of the MSCI AC World Index. Its investment policy is as follows:

• To invest predominantly in listed global equities of quality growth companies with superior share price appreciation potential, based on projected return on invested capital (ROIC), balance sheet strength and sustainable business models.
• To manage a high-conviction portfolio with typically 25–40 positions, held for the long term.
• To spread risk via a portfolio that is diversified by type of company and sources of revenue. No more than 10% of total assets may be invested in a single stock.
• To fully integrate ESG criteria into fundamental analysis when assessing business models.
• To exclude investments identified through the manager’s proprietary ESG risk assessment as having a high level of sustainability or governance risk.
• To potentially use debt to enhance shareholder returns. Gearing will not exceed 20% of net assets at the time of drawdown.
• To not invest in other listed closed-end funds.

The board monitors FRGT’s success via three key performance indicators:

• NAV performance versus the benchmark over a rolling three-year period – not achieved in FY25, with an underperformance of 28.7% (underperformance of 24.4% in FY24).
• Top-third share price performance versus the peers in the AIC Global sector over a rolling three-year period – not achieved in FY25: ninth out of 12 funds (ninth out of 13 funds in FY24).
• Ongoing charges (excluding performance fees) of less than 0.70% per year – achieved in FY25: 0.65% (0.64% in FY24).

Investment process: Three-step, bottom-up approach

Osmani is head of Martin Currie’s 11-strong GLTU team, which, as discussed earlier in the report, will become part of FEG in July 2025. He aims to generate a total return above that of the MSCI AC World Index by focusing on high-quality, undervalued growth stocks with the potential to outperform consistently. The manager has an unconstrained, high-conviction approach and invests with a long-term, five- to 10-year horizon.

There is a systematic three-step investment process that builds conviction at each stage:

• Idea generation: the total universe of c 2,800 listed global stocks is screened down to an investible universe of c 500 companies and then a research pipeline of 90+ names is prioritised to identify companies with a combination of quality, sustainable growth and an attractive valuation. The team believes that companies that can generate a high and sustainable ROIC, above their weighted average cost of capital, can generate above-average total returns over the long term.
• Fundamental analysis is based on eight key criteria: industry analysis, a company’s growth drivers, returns, financial strength, accounting, corporate ethos, ESG profile and valuation. Businesses are assessed on a scale of one (lowest risk) to five (highest risk) across a wide range of measures. As part of the process, there is a systematic risk assessment focusing on industry risks, company risks, governance and sustainability, and portfolio risks. Companies are also assessed against more than 50 ESG criteria and mega-trend thematic analysis: demographic change, future of technology and resource scarcity. Firms considered for inclusion in the portfolio are likely to have a dominant position and pricing power in a market with high barriers to entry. The manager seeks businesses with structural growth prospects, high returns on invested capital, strong cash flow generation and a quality management team with a strong corporate culture. To ensure a consistent approach, a proprietary research template is compiled for companies reviewed, and each is given a conviction rating between 1 (strong buy) and 5 (sell).
• Portfolio construction: each position is weighted appropriately, aiming to ensure a meaningful contribution to the trust’s returns. Osmani and his team break down the portfolio by geographic revenue and profit, rather than where a company is listed, to understand the trust’s exposure by economic value (it is overweight developed and underweight emerging markets). The portfolio is also assessed in terms of end-user exposure at a tier one level – the consumer, business and government – and then at a more detailed tier two level focusing on individual sectors and industries. Stocks may be sold when they have reached their price target, if they are nearing their price target and there are better risk/reward opportunities elsewhere, or if the high-conviction investment case no longer holds true.

FRGT’s portfolio has a high active share (above 90% at the end of April 2024); this is a measure of how a portfolio differs from its benchmark, with 0% representing full index replication and 100% showing no commonality. Portfolio turnover is typically up to 20% per year, implying a holding period of around five years. Compared with the MSCI AC World Index, in aggregate, the trust’s holdings have higher forecast revenue, earnings, free cash flow and dividend growth, higher valuations in terms of forward P/E and EV/EBITDA multiples and a higher ROIC. These relative metrics reflect FRGT’s biases towards growth and high-quality companies with pricing power.

The manager says that the team’s approach is to keep in constant touch with portfolio companies, along with other relevant contacts, thereby gaining deeper knowledge. He highlights that the group has great access to senior managers despite having a relatively modest amount of assets under management.

The manager believes that good ESG practices are a fundamental component of a high-quality company. He considers that including ESG analysis in investment decisions delivers improved returns for FRGT’s shareholders and is integrated throughout the proprietary investment process. More than 50 underlying criteria are assessed to capture the complexity of ESG risks facing a company’s long-term growth outlook and sustainability. The findings may influence important financial assumptions about a company, such as its cost of capital, revenues or costs, and therefore an estimate of its intrinsic value; a poor ESG track record may indicate wider sustainability issues within a firm.

Gearing

For historical context, FRGT did not employ gearing between 2008 and 2020. However, in November 2020 the board announced a £30m, three-year gearing facility with Royal Bank of Scotland International. This was repaid at the end of the term and a new £10m three-year revolving loan facility was fully drawn down for a minimum six months. It had a variable rate of the sterling overnight index average (SONIA) plus 1.55%. In November 2024, in light of the uncertain market outlook and the trust’s zero discount policy, the board decided to remove the gearing and the £10m facility was repaid in full and closed.

Fees and charges

Since 1 July 2022, FRGT’s investment management fee was 0.45% of ex-income NAV per year. However, the board negotiated a lower fee of 0.40% of ex-income NAV, effective from 1 March 2025. In FY25, the trust’s ongoing charge was 0.65%, which was 1bp higher than 0.64% in FY24.

Capital structure

FRGT is a conventional investment trust with one class of share – there are c 57.7m ordinary shares in issue, with a further c 41.0m held in treasury. Over the last year, FRGT’s average daily trading volume was c 100k shares.

The board

There are currently five independent non-executive directors on FRGT’s board. Gary Le Sueur has announced his intention to retire at the next AGM, which will be held on 19 June 2025.

On 5 March 2025, the board announced the appointment of Krishna Shanmuganathan, with effect from 1 April 2025. He is chair of abrdn Asia Focus and the Weiss Korea Opportunities Fund. Shanmuganathan has had a varied career in diplomacy, asset management, consulting and corporate advisory, with a particular focus on Asia.