When the latest FTSE reshuffle takes effect at the start of next week, F&C Investment Trust PLC (LSE:FCIT) will become the fourth closed-ended fund in the blue-chip index, joining Scottish Mortgage Investment Trust, 3i and Pershing Square.
The F&C trust is the granddaddy of the sector, having been the first ever collective investment scheme when it launched during Queen Victoria’s reign in 1868 as the Foreign & Colonial Government Trust, the same year as the last public execution in the UK.
At launch, it sought £1mln for a fund investing in a spread of 18 foreign government bonds or fixed interest stocks.
It's been in the blue-chip index before, 13 years ago, just after the global financial crisis.
Managed by Columbia Threadneedle, the trust’s top 10 holdings are currently dominated by tech giants, including Microsoft, Apple, Alphabet, Amazon and TSMC, as well as healthcare insurers UnitedHealth and Elevance, along with drugmaker Merck & Co and healthcare chain CVS, and two large holdings in private equity funds, while in the next tier of investments are names such as AstraZeneca, Tesla, Wells Fargo and John Deere.
As fund manager Paul Niven put it: “We started out in 1868 investing in Emerging Market bonds including Brazil – so we have moved from literally investing in the Amazon – to purchasing Amazon.com some 140 years later.”
Niven and co say their approach aims to deliver long-term capital and income growth, which they look to achieve by investing in “established companies, strong newcomers and rising stars in developing markets”, which includes taking exposure to a range of private equity funds.
In the trust’s most recent investor update, Niven said markets are expected to remain volatile in the short term as central banks continue to grapple with curbing inflation without negatively impacting economic growth and as the risk of recession rises.
“Nonetheless, F&C Investment Trust has a tremendous advantage through our corporate structure, which makes us well placed to withstand further market volatility,” he said, stressing the focus on long-term opportunities.
As for performance, the reason the company is being promoted to the blue-chip ranks is that the shares have grown since the start of the pandemic: they are up over 12% since the end of 2019 and up more than 40% over five years, a period in which net asset value (NAV) has grown 59%. Its benchmark, the FTSE All World TR Index, had grown 57.7% in that time.
The shares were at an 11.1% discount based on an NAV of 958.68p per share on September 5.
Finally, the timing of FCIT’s return to the top flight timing is also notable, said analysts at Interactive Investor.
“Historically, investors have tended to flock to some of Britain’s oldest investment trusts in times of uncertainty. F&C Investment Trust has weathered the Great Depression, World Wars, the 1970’s inflation crisis, tech booms and busts, and is still going strong. This could well be resonating with investors in the current climate.”
FTSE 250 newcomers
Four investment trusts will also be promoted to the FTSE 250 index next Tuesday (after the delay for the funeral of Queen Elizabeth).
In order of current market size, they are Bluefield Solar Income Fund (LSE:BSIF), NextEnergy Solar Fund Ltd (LSE:NESF), Warehouse REIT PLC (AIM:WHR) and TwentyFour Income Fund Ltd (LSE:TFIF).
The solar-focused pair have gained more fans this year, attracted by their green income credentials and higher power prices.
Last month, both reported higher NAV due to increase in power price forecasts and higher inflation expectations.
Bluefield Solar, which has a portfolio of 673 megawatts (MW) combined installed power, estimated its NAV at the end of June would be 140p per share, an uplift of roughly 10% since the end of March. It has scheduled full-year results for the end of this month.
This was hot on the heels after both solar funds successfully secured additional solar contracts as part of the UK’s latest contracts for difference allocation.
NESF meanwhile, where manager NextEnergy Capital has built a total installed capacity for the trust of 865MW from its 100 solar assets, mostly in the UK, along with committed investments outside the UK and in co-located battery storage.
Having secured power prices higher than forecast, the company posted a record level of NAV, based on its new power price assumptions, with 50% of its revenues made up of government-backed subsidies, where revenues increase in-line with RPI inflation. while its sustainability credentials were also recognised under new European regulations.
NESF’s NAV was up 15% to 113.5p over the year.
NESF and BSIF have also been popular, along with other dividend income trusts, with a large portion of their incoming being inflation-linked.
The ascent of Warehouse REIT, which will also join the FTSE EPRA/NAREIT Global Real Estate Index Series on the same date, has been one of the fastest in the sector, having almost 50% since the start of 2019 and listed on AIM less than five years ago.
Its specialism in specialist urban and 'last-mile' industrial warehouses, overseen by managers Tilstone Partners, has caught the eye of investors who were chasing the wider online retail shift.
Its latest annual results showed its portfolio was valued at just over £1bn at the end of March, up from £307.4mln two years earlier, with an EPRA net asset value of £739mln or 173.9p per share, up from £182.3m and 109.9p respectively.
Analysts at Shore Capital noted that Warehouse REIT shares proved more resilient than other I&L sector peers following Amazon’s recent growth warning in July, while its recent update revealed new lettings had been achieved at an average of 5% above March estimated rental value and with a significant planning approval also gained for some of its development land.
TwentyFour Income’s manager, TwentyFour Asset Management, looks to invest in a diversified portfolio of less liquid, higher yielding UK and European asset-backed securities.
Its exposure to rising interest rates has not been reflected in a strong share price performance this year, though.
Floated in 2013, the same year as Bluefield and a year ahead of NESF, the trio are all being promoted to the mid-cap index together but while TwentyFour’s shares have underperformed both, it gained in size when it merged with the UK Mortgages trust in March.
It feels this part of the fixed income market, where assets are floating and therefore their yields move in line with the central banks raising interest rates, has been “largely overlooked in the recent liquidity driven market rally and therefore currently represents attractive relative value”.
Company · NAV · Discount to NAV · Dividend yield
F&C · 866p · -10.74% · 1.55%
Bluefield Solar · 139.65p · -1.20% · 5.91%
NextEnergy Solar · 121.33p · -1.12% · 6.04%
Warehouse REIT · 173.25p · -11.24% · 4.16%
TwentyFour · 102.71p · 1.72% · 5.74%
Latest NAV, dividend yield via theaic.co.uk, discount based on last close price before publication