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F&C: shocked markets pricing in global corona recession

24 March 2020

There is more bad news to come from businesses but the better news, says F&C manager Paul Niven, is markets are discounting a serious economic contraction, which means asset prices should stabilise.

F&C (FCIT) investment trust has been hit hard in the coronavirus panic, with shares in the UK’s oldest listed fund dropping by over a third in the past month, but fund manager Paul Niven believes a recovery is not too far away.

Niven , who has overseen the £2.6bn global portfolio for nearly six years, said the unprecedented falls in global equity markets since mid-February were the result of the Covid-19 pandemic pitching the world into an unavoidable recession.

‘There is little doubt that we now face a serious contraction in the global economy. This will place tremendous strain on both consumers and on corporates and there is a significant risk that the recovery, when it comes, will be impaired by the severity of the downturn,’ he said.

While collapsing asset prices, confidence and commerce had forced central banks and governments to intervene by slashing interest rates and pumping money into economies, investors were uncertain of their success, he said.

‘We cannot tell when the current crisis will end. Investors are questioning whether policy action will be effective in shoring up economies, as it has been historically. They are also closely monitoring the spread of Covid-19 and, here, there is some hope that a moderation in the pace of new cases in China and some European countries may indicate that containment measures are effective. 

‘Nonetheless, while the downturn will be painful, markets have moved a long way to discount the bad news which is yet to come on the economy and on corporate profits.

‘While the near term will remain challenging, we remain focused on long-term opportunities for our investors,’ Niven said.

Since Niven made his comments last week, the UK stock market has notched up two successive daily gains on hopes that the government’s guaranteeing of workers’ wages, its interest-free business loan scheme and imposition of a strict ‘lockdown’ would slow the spread of coronavirus.

Big share price discount

F&C’s annual results earlier this month underlined the dramatic worsening in conditions in 2010. The 152-year-old investment enjoyed the remarkably bullish 2019 when it increased net asset value (NAV) by 19.1%. 

Although it lagged the 22.3% gain in its benchmark, the FTSE All-World index, shareholders ended with a total return of 22.9% as the shares moved to a 1.5% premium over NAV. This return including dividends which rose 5.5%, their 49th consecutive annual rise.

Such has been the speed of the 35% slump in the past month the shares have fallen to 15% below NAV, F&C’s widest discount since the 2008 financial crisis.

Delivering her first set of full-year results, trust chair Beatrice Hollond said most of F&C’s investment strategies, which with the exception of private equity are outsourced to external fund managers, had unperformed strongly rising markets. Europe, which accounts for 7% of assets, did outperform, however. 

Less successful was an investment in life sciences fund Syncona (SYNC) which fell 18% after its shares de-rated.

Weathering the storm

Hollond said the trust has ‘weathered many a crisis’ since 1868 and ‘though there are likely to be economic and equity market challenges in the near-term, your company has a diversified portfolio that is well placed to cope with market shocks and short-term volatility’. 

Numis analyst Priyesh Parmar said the track record under Niven was ‘solid’. Although recent experience suggested otherwise, he said: ‘We believe that it is well placed to deliver attractive long-term NAV growth, with lower volatility return than many of its peers in the global equity sector.’

Over 10 years, F&C has delivered a total return to shareholders of 107% which currently places it sixth out of 16 trusts in the AIC Global sector. 

Investment company news brought to you by Citywire Financial Publishers Limited.

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