F&C fund manager says speculation about the end of American exceptionalism is wide of the mark as investment trust reports a flat first half after a comparatively tough time for both the US dollar and stockmarket.
F&C (FCIT) made no headway at all in the first half of the year but the UK’s oldest investment reckoned a zero return in the face of US tariff turmoil and a weak dollar was a pretty good result.
The £5.7bn FTSE 100 listed global equities fund managed by Columbia Threadneedle said the 0% return on net assets was a little below the 0.8% total return of the FTSE All-World index with both masking a pronounced downswing and upturn as fears eased over the tariffs unveiled by US president Donald Trump in April.
Its rival Alliance Witan (ALW), a £5bn global multi-manager trust, also reported struggling with the same conditions leading to a 0.7% fall in the first half.
“Despite facing headwinds in the form of global tariffs and escalating geopolitical tensions, the resilience of financial markets in the face of such uncertainty has been notable,” the 157-year-old company said.
Investor sentiment was knocked, however, with the shares slipping to a wider discount, currently 7%, below the net asset value (NAV) of its investments. This prompted the board to buy back a further 1.3m of the cheap shares, modestly helping the underlying NAV return.
Not only did the US dollar suffer its worst half-year in 52 years, falling 9.7% against the pound as the Federal Reserve held interest rates while central banks in the UK and Europe cut theirs, the US stock market also suffered its biggest underperformance to world markets in decades.
In sterling terms North America equities fell 2.5% in the six months to 30 June, a big issue for a trust just over 63% invested in the US and Canada. F&C’s investments underperformed with a fall of 3.3%. Its large company growth funds did better than their benchmark, boosted by overweight positions in streaming companies such as Netflix and Spotify. US “value” style funds had a more difficult time, particularly those outsourced to Barrow Hanley which were hit by the slump in UnitedHealth Group that also hurt Brunner BUT).
Europe including the UK, where F&C has nearly 20%, was the standout performer rising 12.3%, boosted by Germany and other countries making big commitments to increase defence spending. Here too the trust underperformed, making a 9.2% return and citing weakness in UK education group Pearson which reported being hurt by tighter immigration enforcement in its key markets, including the US.
Comparatively, F&C did best in emerging markets, where it has 9.3% invested, gaining 6.1% against a benchmark return of 2.7% after appointing Invesco to run a dedicated fund; and also Japan, where it has 5.7%, achieving a 6.1% return versus the index gain of 2.6%.
US still a world beater
Fund manager Paul Niven said talk of an end to the era of American exceptionalism was wide of the mark as the US economy was still forecast to outpace all other G7 countries this year and next.
The US stock market was more expensive than international markets but its superior historic growth in earnings justified that premium. In the near term, US earnings were likely to be higher as well, he said.
“While we have been reducing, at the margin, some of our US weighting through sales of both equities and the dollar, reports of the demise of the US are likely exaggerated,” said Niven.
“Many of the large US corporates continue to demonstrate impressive competitive positions within segments of the market, such as AI, which will continue to see structural growth. At the margin, however, the opportunity set for investors within global equity markets should widen beyond the recent stand-out performers.”
All this leaves F&C shares up 13.7% over one year at 31 July, with an 87.7% total shareholder return over five years that ranks it third out of 11 investment trusts in the Global sector.
The growth fund’s shares yield 1.3% with a first interim dividend of 3.8p per share to be paid next month, putting F&C on track for a 55th consecutive rise in annual payouts. Last year it paid a total of 15.6p.
