F&C hands emerging markets to Invesco as returns ‘broaden’
F&C Investment Trust (FCIT ) has appointed Invesco to run a ‘dedicated emerging markets strategy’ with strong early results.
The announcement came in half-year results to 30 June, with the £5.6bn investment trust’s board saying the decision followed ‘an extensive and thorough selection process’. The switch from an internal mandate at Columbia Threadneedle, which manages F&C, was made early in the year.
Emerging markets were a bright spot over the period, with that portion of F&C’s portfolio returning 6.1%, ahead of 2.7% for the relevant benchmark, and outperforming the US.
The trust’s manager Paul Niven said the shift reflected ‘a broadening in market returns within equities.’ On emerging markets specifically, he added:
‘The weaker US dollar has been a strong tailwind over the first half, while the prospect of US interest rate cuts has further boosted optimism. Despite tariff risks, after an extended period of underperformance and stagnant domestic earnings it may be that emerging markets equities offer attractive relative returns, supported by potential further Chinese stimulus measures.’
F&C still remains underweight the emerging region, however, holding 4.8% versus its 10.1% benchmark allocation.
Performance drivers
Overall, net asset value (NAV) total returns were totally flat at 0.0% over the six months, while the FTSE All-World index rose 0.8%, as reported in results released on Friday.
European exposure delivered the strongest returns, helped by financials including National Bank of Greece and Bank of Ireland. In emerging markets, Telefonica Brasil was a standout, buoyed by 5G expansion.
The trust’s Japan and global strategies also outperformed, while North America and private equity were detractors.
Within the US book, the large-cap growth strategy run by JP Morgan beat the Russell 1000 Growth index thanks to holdings in streaming companies like Netflix and Spotify. But the value side, run by specialist Barrow Hanley, was dragged down by UnitedHealth Group and Pacific Gas & Electric.
On the back of US losses, Niven confirmed trimming exposure ‘at the margin’ through sales of equities and the US dollar.
He caveated that ‘reports of the demise of the US are likely exaggerated’, adding ‘many large US corporates still demonstrate impressive competitive positions, particularly in areas like AI.’ Nonetheless, he expects ‘opportunities for investors should widen beyond recent stand-out performers’.
The trust has outperformed the Global AIC sector average in share price total returns over the past three and five years, though fares less well over one.
It currently trades on an about 7% discount to NAV, with the board repurchasing more than 1.35m shares – at a cost of £14.2m – over the period to tackle this gap.
