Nick Wood, head of fund research at Quilter Cheviot: “Based on last night’s closing prices, we expect tonight’s quarterly rebalance of the FTSE indices to confirm F&C Investment Trust’s move from the FTSE 250 to take a place in the FTSE 100 index.
“The world’s very first investment trust will join Scottish Mortgage Investment Trust, the global growth vehicle run by Baillie Gifford, Pershing Square Holdings, run by US-based hedge fund manager Bill Ackman, and private equity vehicle 3i. Perhaps more importantly, it is the first time we have seen four investment trusts in the FTSE 100.
“F&C Investment Trust was launched way back in 1868 and is run by Paul Niven of Columbia Threadneedle Investments. The trust invests globally primarily via underlying funds. It has also been a stalwart with those looking for a consistent stream of income and has become somewhat of a ‘dividend hero’, having raised its dividend continuously for over 50 years.
“Whilst the FTSE 100 has returned around 9% for the three years to end July, F&C has returned 26% over that period. However, despite returns being ahead of its future index home in recent years, investors should bear in mind that F&C has exposure to some areas that have done well over the years but have struggled in 2022, such as US technology firms which make up its largest equity holdings, and over 10% invested in private equity.
“These areas may take advantage of long-term structural trends, but in the period of rising interest rates we are currently going through, their valuations can become increasingly challenged. With the outlook remaining cloudy in this regard, we could see additional volatility for F&C as it enters the blue-chip index.”
Can F&C live up to the billing?
“If we look at Scottish Mortgage, Pershing Square Holdings and 3i we can see that performance has been good in the year following their entry into the FTSE 100. However, while promotion can bring more profile and additional buying activity from passive vehicles, it is no guarantee of strong performance. Those looking at F&C as a potential investment should not simply base their investment case on entry into the FTSE 100.”
One year return since joining the FTSE 100
|Investment trust||Total Return, GBP|
|3i (III) – entered June 2014|
|Scottish Mortgage (SMT) – entered March 2017|
|Pershing Square Holdings (PSH) – entered December 2020|
What about other investment trusts?
“Whilst having four investment trusts in the FTSE 100 is a first, it may not be long before they are joined by one or two others. Among the next twenty or so largest companies, six are investment trusts, including a number of infrastructure and renewable trusts such as International Public Partnerships, Greencoat UK Wind, The Renewables Infrastructure Group and HICL Infrastructure.
“These four trusts have not only outperformed the FTSE 100 over three years but have also received a bounce in their size from ongoing capital raises, which has been a strong trend within the ’real assets’ sector. According to Numis, those four investment trusts have raised a staggering £2.9bn in the last three years. This demand from investors remains strong, and that alone may see the trusts move up to the FTSE 100 in due course.
“But what does this mean for investors? For fund managers investing in UK Equities, investment trusts have largely been avoided by most, but perhaps this will change as their presence in the FTSE 100 increases awareness, at least regarding areas such infrastructure and renewables. Passive vehicles will also continue to add to their weighting, assuming investment trusts are part of their remit, and thus we could see share prices be supported by these ‘forced’ buyers.
“It also reflects the ongoing change we are seeing in the UK stock market as a whole, and a combination of overseas acquisition of larger companies, as well as the greater focus on lower growth companies we have today.”