F&C Global Smaller Companies (FCS) investment trust reports that over the year to 30 April it enjoyed a 30 per cent increase in its share price and 28.1 per cent increase in its net asset value (NAV) total return. This was ahead of its hybrid benchmark, the MSCI All Country World ex UK Small Cap Index (70 per cent) and Numis UK Smaller Companies ex investment companies (30 per cent), which made a total return of 22.4 per cent.
Over three, five and 10 years, both the trust's NAV and share price total returns have beaten its benchmark, and an investment of £100 in the trust 10 years ago with dividends reinvested would now be worth almost £600.
Performance
1 year | 3 years | 5 years | 10 years | |
NAV total return (%) | 28.1 | 50.2 | 86.3 | 359.7 |
Share price total return (%) | 30 | 70.9 | 110.4 | 498.8 |
Benchmark (%) | 22.4 | 36.5 | 64.8 | 248.8 |
Source: F&C Management & Datastream
This comes as recent research by the Association of Investment Companies (AIC) on the 20 most consistent and strongly performing investment trusts over the last decade found that F&C Global Smaller Companies was the second most consistent.
We included F&C Global Smaller Companies in the IC Top 100 Funds list because it is one of the few investment trusts to specialise in smaller company investment on a global basis, and it has a focus on identifying undervalued companies with strong growth potential, which has resulted in strong returns.
The investment trust was helped over the year to 30 April by the fact that smaller company shares did better than larger stocks in the UK and were slightly ahead in the US. But the trust divides its holdings into five geographic buckets, and all of these portfolios were ahead of the local market smaller company indices.
The largest contribution towards outperformance against the trust's benchmark came from its US portfolio due to the amount of assets it has there - 40 per cent at the end of April, although the trust is still 1.1 per cent underweight North America versus its benchmark.
The stand-out performer in the North America portfolio was again household goods retailer Conn's, which rose 164.9 per cent. New management has improved the assortment, closed underperforming stores and introduced a new superstore format.
Read more on why the trust invests in Conn's
As well as having the largest part of its assets in North America, within Europe and the UK, the trust's investment team has targeted companies with a good exposure to the US.
"The US economy has been doing better and the housing market here has shown definitive signs of improvement," says the trust's manager, Peter Ewins. "This is an important ingredient along with better employment trends and a rising stock market to lift consumer sentiment."
North America
Portfolio performance (%) | 29.4 |
Russell 2000 Index (%) | 22.8 |
S&P 500 Composite Index (%) | 22.1 |
Source: F&C Management
However, Mr Ewins maintained an underweight stance to the UK, while being overweight in Europe and Japan, where he felt valuations were more attractive. He is also relatively cautious on the outlook for emerging markets and the weighting to this area was reduced over the year to 30 April.
"Our long-term approach has been to seek to add value in asset allocation by lifting exposure when a region becomes very unfashionable," explains Mr Ewins. "So, in the early months of the year, we added to our European exposure and likewise in late 2012 we were adding to Japan. The resurgence of late in Japan, driven by the enhanced stimulus being applied by the new government... was therefore welcome news for us."
Continental Europe
Portfolio performance (%) | 31.1 |
| HSBC Smaller Europe Ex UK Index (%) | 23.6 |
FTSE All World Developed Europe ex UK Index (%) | 28.1 |
Source: F&C Management
Japan
Portfolio performance (%) | 32.2 |
MSCI Japan Small Cap Index (%) | 26.1 |
MSCI Japan Small Cap Index (%) | 28.2 |
Source: F&C Management
However, as returns globally proved to be relatively consistent across regions, despite some material shifts in the currency markets, asset allocation had a negligible effect on the overall relative performance against the benchmark.
The trust's strong performance means that it has levied a performance fee of £1.5m resulting in an ongoing charge of 1.49 per cent, albeit lower than the previous financial year when it was 1.56 per cent. The trust also trades at a premium to NAV of 1.13 per cent - wider than its 0.25 per cent 12-month average premium.
Mr Ewins anticipates a period of consolidation in markets. "Given the strong run we have had in the markets and the fact that valuation multiples in many countries are above historical averages, we ended the year with significant net cash," he says.
