F&C Investment Trust H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 17, 2025

Key Takeaways

  • Positive Sentiment: The trust delivered a 21% NAV total return in 2024, outperforming the FTSE All-World benchmark’s 19.3%.
  • Positive Sentiment: A 6.1% dividend increase to 15.6p for 2024 marks the 54th consecutive annual rise.
  • Positive Sentiment: Ongoing charges fell to 0.45% from 0.49%, with further fee reductions expected in 2025.
  • Negative Sentiment: The private equity portfolio, while positive in absolute terms, lagged listed equities and detracted from relative NAV performance.
  • Negative Sentiment: Ongoing geopolitical and trade uncertainties—including potential US tariffs—pose risks to global growth and investor confidence.
AI Generated. May Contain Errors.
Earnings Conference Call
F&C Investment Trust H2 2024
00:00 / 00:00

There are 2 speakers on the call.

Operator

Welcome to this, the second of our fireside chat, and it's part of our engagement with shareholders. And we're particularly keen to reach those who, for one reason or another, may not be able to attend our AGM here in London. And indeed, looking at the numbers from last year, we can see that if you take the participants who listened to this event last year online or following it on the download, it was many, many more than were able to attend the AGM. So we think it's it's a useful exercise. And with me today is Bea Holland, our distinguished chairman, who will set the scene, and then she will hand over to Paul Niven.

Operator

Paul Niven, the portfolio manager of the trust from Columbia Threadneedle Investments, one of the city's most senior and highly respected investors. And he will take you through the annual report. I will then be putting your questions to Bea and Paul. And Mark's already explained how you can, submit the questions. I've already got some coming in on my laptop.

Operator

I can see. And I'll take those questions, and we'll answer as many as possible at the end of their presentation. So over to you, Bea.

Speaker 1

Welcome, everybody. Thanks very much. This is just Paul will run through the detail of the performance in a minute, but I just wanted to give you a quick introduction. Obviously, this was the second very strong year of performance for, your investment trust and, obviously, for markets as well. Our objective remains both growth in capital and income, and that is still the focus of Paul and his team.

Speaker 1

Our ten year shareholder return has been 212%, which is more than 12 per annum. This year, the return was 21% on the NAV versus 19.3% for the benchmark. Although the shareholder return itself was a little bit lower at 16.9% because that was impacted by the slight widening of the discount to 9.2% from 5.9. Paul will give you the detailed performance, but we, as a board, are very happy with it and, hopefully, you all are too. We also are proposing another rise in the dividends subject to the approval at the annual general meeting on the April 30.

Speaker 1

We want to, we're proposing a final dividend of 4.8%, of 4.8 p, which gives a total of 15.6 p for the year, which is an increase of 6.1%. This means that that compares with 2.5% for CPI. And that means that dividends have grown over one, three, five, and ten years and exceeded inflation in each of those, periods. And it's also our fifty fourth consecutive rise in dividend and our hundred and fifty seventh annual dividend. We're an independent board as one of the one of our roles is to ensure that costs are competitive.

Speaker 1

And the ongoing charges fell to 45 basis points this year from 49 the year before. And we've negotiated further reductions, so we expect to cut this to come down again next year as well. The board, has had a couple of changes or is undergoing a couple of changes. One, Tom Joy, who left, last year, and he has been replaced by Richard Robinson. He's a Robinson.

Speaker 1

He's a very strong investor in his own right and runs the portfolio for a large foundation. We are also losing Edward Knapp later this year. He will have served his nine years, and we're very grateful to him for all his enthusiasm and attention that he has given to this trust. Well, the search is underway, and we will let you know more once we have chosen his successor. Just got one final thought.

Speaker 1

There are lots of reasons to be cautious near term. But in the twenty five years since the millennium, we have gone through, first of all, the tech crash in the early two thousands, the great financial crisis, Brexit, and COVID, and obviously now more recently, extreme geopolitical uncertainty. But there are also developments which should bode well, particularly in AI and other tech. Paul will obviously discuss all this much more detail. But where we think that there may well be a positive impact to the world, but we're still evaluating exactly what that is.

Speaker 1

I'm now going to hand over to Paul to tell you the detail of how he achieved the performance last year.

Operator

Thank you very much, Pete. Thanks very much for your attendance. So while spending the next fifteen or twenty minutes doing is running through the highlights from the results from 2024. Before I get on to that, I'll just spend a few minutes just building on some of points that made already, but give you a sense of our heritage, history, and where we are today, what we look to deliver going forward. We are the world's oldest investment trust established in 1868.

Operator

And as Bea said, we have paid a dividend every single year since 1868. And subject to shareholder approval, this year will see us deliver our fifty fourth consecutive year of rising dividends. We are an AIC dividend hero. We've displayed consistency in terms of management and approach. I've managed the trust since mid twenty fourteen, and I am the third manager since 1969, following 10 managers before me.

Operator

So in regards to the long standing tenure and consistency, as I said, in terms of managers, and approach. We're an equity product. We started investing in equities in the nineteen twenties. We were overwhelmingly invested in equities by the nineteen sixties, but also have significant experience in private markets where we made our first investment into unlisted equity in 1942. We've got very material scale.

Operator

Our market capitalization at the January was £5,700,000,000, total assets of 6,500,000,000.0. And we are a FTSE 100 constituent. We we entered the FTSE in September 2022, and at the present time are in the mid to high sixties in terms of rank within that index. In terms of our objectives, again, building on what Bea said, our overriding aim is to deliver long term growth in both capital and income. We the way that we seek to achieve that is by delivering exposure to both listed and unlisted global growth assets.

Operator

In other words, listed equity and private equity. And we blend a range of, in of in of themselves, focused active strategies to achieve superior returns with lower risk, so delivering the benefits of diversification. And we do have a commitment to net zero carbon portfolio by 2050 or earlier. The outcome we look to deliver on top of our aim is consistency in terms of performance delivery and a value for money proposition for shareholders. So the highlights from our results in 2024 are on this slide.

Operator

Shareholder total return was 16.9%. It was a really strong year for equities in general, the second consecutive year that the S and P 500 in The US delivered a return in excess of 20%. And the last time we saw that was in the late nineteen nineties. So it's a really strong year for global equity markets. Our underlying NAV, net asset value, total return was 21%, and that was ahead of the benchmark return with FTSE All World net index of 19.3% for the year.

Operator

I'm going to explain a bit about the drivers of return in a moment. We did the the the reason there was a a gap between the shareholder return and the natural return is it was a function of a widening of our discounts to NAV. We started the year at 5.9% discount, ended the year at a 9.2% discount. That's where there's a widening in discount. Subsequent to year end, we have seen some narrowing.

Operator

We're back towards a mid broadly mid single digits discount. In response to widening discount, we bought back 27,300,000.0 shares. Now the sector more widely did see widening discounts, general uplift in buybacks. So we were not alone, but it was quite a material uplift. And and that is accretive to NAV.

Operator

So that is beneficial to shareholders by lifting the NAV, buying in shares when we're trading at a discount. I'll demonstrate the impact of that in a moment. So it was a good year, I think, in absolute terms, a good year in relative terms. And if one considers longer term returns, we have delivered both NAV and shareholder returns ahead of our median peer over 01/2010 and indeed twenty years, and NAV returns were ahead over all of those periods as well. So strong 2024, that consistency in terms of those long term returns.

Operator

Really helpful to see our net revenue return per share up by seven and a half percent, so our income was just over 17p, another new high, and that enabled us to not only have a covered dividend for 2024, but as again be suggested, propose a 6.1% rise on 2024 over 2023. So subject to final approval, the 2024 dividend will be 15.6p. And again, to repeat the point, fifty fourth consecutive annual rise in our dividends. Now private equity has been something of a drag on the portfolio in recent years. We've had positive long term experience from investment in private markets, but last couple of years have been somewhat lackluster.

Operator

It was a positive year for private equity in absolute terms, but given the significant strength we saw in listed markets, we did see once again private equity lag listed equity markets, and that did detract from NAV returns in relative terms. In addition to that, another significant point I'll make is we did have exposure to the magnificent seven cohort of stocks, which includes NVIDIA, Amazon, Microsoft, and others, but we had less exposure than the benchmark. And that group of stocks delivered a return of around 67% in dollar terms on the year. So having, say, light exposure there, say, in Apple and Tesla was was a slight detractor from our relative returns because market was narrow. As I said, those seven stocks, 67% return, materially outperforming The US, which in turn outperformed the rest of the world.

Operator

And costs are down. So our ongoing charges figure, 45 basis points, that's down from 49 in 2023. A revised management fee arrangement with Columbia for annual investments delivers the benefit of lower costs through increased scale. So in more detail and decomposing that 16.9% shareholder return, you can see here the portfolio delivered a return or portfolio of assets that we invest into delivered a return of 19.1. Management fees and interest and other expenses detracted 0.30.5% respectively.

Operator

Buybacks, as I said, were accretive, buying in shares at a discount to NAV added 0.5%. There was a change in the value of our debts with a rise in market interest rates that reduced the value of our outstanding debts in terms of fair value, and that was positive. And then the impact of having borrowings gearing into a rising market, again, was accretive to returns. So the NAV total return was 21% from for the year. The change in share price discount detracted 4.1% and that led to the share price total return of 16.9%.

Operator

In terms of underlying performance, we'll just draw a few points from the slide. There's quite a lot of information here. What this shows, and I'll give a bit more granular detail in a moment, is how much we have allocated to different areas geographically as well as how much we have in private equity. So for example, we have 41.7% of our underlying portfolio invested in strategies which are have exposure to North America specifically. But our underlying allocation is actually higher, 64.5%.

Operator

That's a function of those global strategies of 30.1% having global exposure by definition, a large chunk of that component also being in The US. So look at the underlying allocation, you can see there's 64.5% of the portfolio in North America, 20% in Europe and so on. Portfolio performance and index performance is in the last two columns, so you can see the highlights and relative lowlights in terms of performance for 2024. North America, we had very, very strong performance, 27.7% for the year in aggregate that compared to index of 26.3%. Within that, we've got exposure to growth stocks and value stocks.

Operator

Both our primary growth manager and our primary value manager, they performed their respective indices significantly. Europe, while the index return was relatively lackluster in a global context, We had significant outperformance delivered 11.3% against V index of 4.2%. In Japan, again, good outperformance, 14.9 against 9.7, whereas there was some modest underperformance from our emerging market exposure, quite a small allocation, you can see 4.9%, but also some underperformance from global strategies. And in that global strategy context, we've got again some growth exposure and some more volume on to the exposure. Their growth exposure did very well at 25.4% from our global focus strategy, whereas our more income oriented and value oriented strategies actually underperformed the benchmark.

Operator

Not out of line with expectations given the fact that growth stocks were in the ascendance once again and meaningfully outperformed value, but nonetheless very disappointing to see global strategies in aggregate underperform. Now if one took the portfolio excluding private equity, we outperformed listed comparators. When one adds in that return from the private equity component, which was just under 11% of our total assets, 9.7% return from private equity, that was quite a way behind listed markets which globally did 19.3% last year so that detracted from relative returns as I said. So that gives a snapshot of the performance, what worked, what didn't work. As I said, strength in North America in relative terms, unabsolute terms, Europe in relative terms, Japan in relative terms, and some underperformance in emerging markets and global strategies, albeit some pockets of really strong returns within those areas.

Operator

And private equity, actually a really good year, but lagging listed markets. In terms of our allocated exposure, again lots of information on this chart. You'll be able to perhaps look at this in more detail on the playback if you have interest, but this shows you a few aspects. One, the fact that we are diversified in terms of our underlying strategies. The reason we are diversified is that by blending across a range of differentiated investment strategies that each invest in a slightly different way, one can add returns while reducing risk.

Operator

So there's more than one way in our view to win within global equities. You can buy cheap stocks, value tends to outperform in the long run. You can buy growth stocks and high momentum stocks, that also tends to work in the long run. And you can buy high quality companies, that also tends to work in the long run. So by blending across those different components with growth, quality and value attributes and with strategies that have concentrated exposure, very specific mandate in terms of delivery, we can add returns and smooth the performance outcome for shareholders.

Operator

So this gives you a sense of that exposure regionally and globally and also within the private equity space. So again, just adding a little bit more detail to that, we've got a few areas within The US market that we have exposure. Some of that is managed by combitriennial investments. We also have JPMorgan Asset Management who run a growth portfolio for us. As I said, very strong performance last year, meaningfully outperforming the Russell one thousand growth.

Operator

Beryl Hanley outperform outperforming last year, the Dallas based value manager. Elsewhere, a range of different strategies in global and also in private equity, where, again, we blend internal expertise to source and select funds and co investments, but we also use third parties, and specifically in case of Pantheon, and who run a bespoke program for us in terms of venture capital and growth exposure, and they provide us with access to preeminent managers in that space. So what did we do last year in terms of activity? There was a lot going on. We started the year with some real concerns about recession.

Operator

There was very aggressive expectations in terms of interest rate cuts from the US Federal Reserve, the Bank of England, and elsewhere. AI, artificial intelligence, remained a dominant theme. The US performed very, very strongly, outperforming global markets, and growth, as I said, outperformed value. And I shouldn't forget to say that, obviously, towards the end of the year, we had a rather significant event in The US in terms of presidential election. And initially, that led to to quite a boost to to to risk assets, equities, and US equities specifically.

Operator

But obviously, since year end, the picture there has turned somewhat, and I'm sure we'll have some questions on that. So we ended 2024 with more exposure in The US than we started. You can see growth and value exposure there was higher at the year end than at the start. We had less in Europe and emerging markets. And actually in the early part of the year, we sold some European exposure.

Operator

We also sold some emerging markets. We added to Global Focus, as I said, very strong pro form a last year, twenty five point four percent return. We also added to our global enhanced strategy as well. And private equity reduced slightly as a proportion of the overall portfolio. Private equity, we we had net distributions, so we we we had more out of the portfolio than we paid in, so that Columbia Trend deal investments component.

Operator

But really the reason that that allocation went down slightly proportionately was really because listed equities performed so strongly relative to unlisted. In terms of our revenue and dividends in a little bit more detail, I'd repeat some of points I made previously. Final dividend is proposed at 15.6p that will be an increase of 6.1% on the year ahead of inflation not just last year but one three five and ten years and indeed longer term. We had a very helpful increase in net revenue term per share of 7.5% last year to a new high. Our revenue reserves are extremely healthy.

Operator

At the end of 2024, we held a £116,200,000 in reserve before the payment of third and final dividends, and that equates to about 24.2 per share. So cover dividend, substantial revenue reserves, and that puts us in a very strong position to not only pay dividends in future years, but to pay rising dividends in future years. And the boards are clearly committed to raising dividends for shareholders over the long term as we have historically. Moving through exposure at the end of the year, including liquidity, including private equity, the left hand side there, again, a lot of information on this chart, but it shows you that we do have over 60% of the portfolio invested in North America. We've got a small amount of liquidity.

Operator

Right hand side there, listed equity exposure, technology and consumer discretionary are the two largest single components of our listed equity portfolio. Gearing. Gearing fell slightly on the year. We didn't borrow any more during the year. We hold about £580,000,000 worth of debt.

Operator

That was held relatively constant throughout the year. So the fact that our asset value rose and in nominal terms was held constant means that debt at par fell and debt at fair value also fell. So gearing fell from just under 10% to around about 9% last year with data par and fell closer to 5% with data at fair value. So we're we're modestly geared when one considers data at fair value, say, around about the 5% level. And I just want to reiterate, and those who have heard me speak will know that every opportunity I do every opportunity that I have, I will remind shareholders that we have fantastically well priced long dated debt.

Operator

This shows about £580,000,000 worth of borrowing split over different maturity buckets. So we've got around about 170,000,000 of debt that is due in the ten years, around about 150,000,000 in the next ten years, ten to twenty and so on. And this shows the fixed rate that we pay for each segment. So you blend all that together and our blended cost of debt in fixed terms is about 2.4%. And we did borrow as low as 1.87% for 2061 borrowing.

Operator

So we've taken that debt, and we've invested into assets, equities and private equity, and if we make a return over the long term, which exceeds the cost of funding, that will be additive to returns. And given the hurdle rates we have in terms of borrowing rates, we think that's highly likely. Ongoing charges, we do, as I said, seek to deliver not only strong and consistent returns for shareholders, but do deliver these returns in a cost effective manner. And the board engaged with the management company and renegotiated fees. We felt we already had a competitive fee rate, but that has been reduced further.

Operator

So our ongoing charges fell, I should say, from 0.49 down to 0.45% at present. And part of that reflects the benefit of scale, but also a revised management fee arrangement. So from the 01/01/2025, management fees which Columbia Preneedle will earn from FMC, which is based upon the market capitalization of the company. So I should point out that the interest of the management company and the shareholder are aligned in terms of market value rather net assets. So when the discount narrows, it's good for us as a management company.

Operator

When discount widens, then clearly we, the market capitalization all else will fall and we will earn less. Our interests are fully aligned there. We've reduced the tiering in terms of that 0.3% rate from GBP 4,000,000,000 to GBP 3,500,000,000.0 and above GBP 6,000,000,000, there's a new rate which has been introduced. So when market capitalization is above GBP 6,000,000,000, the value above that will be charged at 0.2%. We're not at the 6,000,000,000 level yet.

Operator

We're hopeful to to reach that level in coming quarters and and years. At that point, there'll be a new tier which is introduced a 0.2% for value above that level. And then next year, again, as Bea alluded to, that 25 basis point rate will be payable on assets from 3,000,000,000 to 6,000,000,000 or from market value, I should say, from 3,000,000,000 to 6,000,000,000. So that should be beneficial again to a further reduction in our ongoing charges, which have come down meaningfully in recent years. Just a couple of words on the discount.

Operator

So with a long journey from 2014 really to 2019, 2020, just pre COVID to reaching a premium, and we issued shares in both those years, we have seen the discount widen. And as I said, we did face some challenges. I think it's fair to say in the sector last year, we did buy in 27,300,000.0 shares and we ended at a wider discount last year than we started. We have been committed to using buybacks. It is accretive to NAV, as I've demonstrated, and we are encouraged that the discount has come in since year end.

Operator

Performance from a say a long return perspective, again, quite a lot of information on this slide. A couple of key points. This shows you the shareholder return, the NAV return against different comparators. The AIC, which is the Association of Envision Companies, our closed ended peers over these time periods and where we sit from a quartile perspective. So last year, we delivered a second quartile.

Operator

We're in top 50% of competitors in terms of our shareholder return. We were in top 25% in terms of NAV return. And those were meaningfully ahead of open ended fund equivalents, but also we were ahead of benchmark. So to repeat the point I made in one of the early slides, we're ahead of benchmark. We're ahead of benchmark at the 2024 over 01/2010 and actually twenty years as well.

Operator

So and that's we're very pleased with that outcome and, obviously, very strong absolute returns as well. So I'm sure we're going to get into Q and A. I'll make just a few comments before we do take questions just with respect to where we are notwithstanding all the obvious uncertainty, our view on the outlook. Firstly, I would say the the fundamental backdrop for equities is predominantly, in our view, driven by daily for corporate earnings, interest rates and inflation, and the corresponding risk appetite of investors. We still think that that fundamental backdrop is reasonably constructed.

Operator

What I mean by that, essentially, at the present time, while there are risks, we do not envisage a recession in The US. We think that we'll get a reasonable growth outcome and good corporate earnings in The U. S. And in Europe and in Japan and in Asia and emerging markets globally. We're also likely to see further declines in interest rates.

Operator

And again that tends to be constructive for equity markets. So provided that that backdrop holds and there are clear and obvious questions with respect to that relatively benign view, the outlook for equity markets is reasonably constructive. Now the risks are numerous and frankly relatively obvious in many instances. One, geopolitical and political risks. Tariffs, we have seen the early moves from the US administration, which have not always been either communicated or indeed to this point implemented in a consistent manner, but tariffs are at the margin likely to reduce growth, raise inflation, and clearly a trade war will be damaging for growth.

Operator

The US will not be immune. The US is relatively closed economy, but it will impact on growth there if tariffs are imposed as indeed seems likely to be the case and is the case. In addition to that, the approach to trade policy that we've had thus far creates tremendous uncertainty and that damages clearly business and consumer confidence. Businesses will have less confidence in terms of capital expenditure decisions, consumers whether they work in the public sector in The US or not, will have a lower confidence with respect to the outlook the impacts of their particular role and job in the wider economic environment. So there is a clear risk here that if if the trade war escalates, that that will be detrimental to growth.

Operator

We we hope that that will not be the case, but it is the risk. We do remain vigilant. More positively, we have seen a real sea change in terms of the backdrop for the Eurozone in general, Germany specifically. Growth prospects from that region look much brighter over the longer term. There's been an announcement of a plan to meaningfully increase expenditure, fiscal expenditure on defense and infrastructure.

Operator

That will boost headline growth. It will be concentrated in certain segments of the economy. It has led to rise in the euro and in terms of market interest rates, which at the margin does take monetary policy in that area, but it is good news. And it does bode more positively for the outlook for Europe. And that does, I think, lend weight to the view that we have that the market is going to be broader in terms of performance.

Operator

The equity market will be broader over the medium term than it has been in recent years. So last year, to repeat the point, Magnificent seven, very, very strong performance, meaningful outperformance against the S and P around 40% in arithmetic terms. I don't think that that is gonna be repeated in short order. We do expect better performance from areas outside of The U. S, some element of catch up.

Operator

But those areas, specifically Europe, have run very hard, very fast in short order. But medium term, I definitely think the market will be broadening. For private equity, exits will depend to some extent on the risk appetite of investors. On listed markets, clearly, we do expect that deal volumes and exits will increase. I should say we did see some very good exits last year on our private equity portfolio from the co investment side.

Operator

One notable exit we had was from pet pet supply retailer, Julies. We made a 3.7 time return on that investment and over £29,000,000 returned back to to the trust. So we're seeing some good exits coming through. It was a good year actually for private equity in absolute terms, and we're hopeful that that will continue. I'm mindful of time.

Operator

I'm gonna pause there. I suspect that Steven has a list of questions he is armed with, so I'll I'll pass over to you, Steven. I have a very long list of questions here, actually, and my job is to collate as many as possible to get through as many as possible. You can still submit more questions there. I'll scroll through them.

Operator

And you've answered the first one. There's a big theme of a lot of the questions. You've partly answered this and it's people asking about global political instability, White House chaos, and in particular, are you've got a big exposure to The US, a big exposure to technology. Do you think now is the time to make a strategic shift away from that sector and away from that country? Well, what we've done year to date is a modest reduction in US equity exposure.

Operator

I do think, as I said, that medium to longer term, we will see a broadening in the market, and that does argue for widening in terms of exposure, maybe some reduction in terms of US going forward. I don't think the time is quite right to be to be making that shift right now. But I think The US market, despite relatively extended valuations, still has a lot going for it. It is expected to deliver superior earnings growth against other developed markets this year and on a go forward basis. Margins on many of the market leaders remain very, very high.

Operator

And while there may be some modest reduction, again, are expected to be superior return on equity as well compared to other areas. So I think there's definitely a case that the market will will broaden. I I am not and again, you know, events may change and things are the both political and geopolitical backdrop is moving very quickly. But I I am not of a view that we're in a bubble in The US. I'm not of a view that the valuations are so extended that we're gonna get a meaningful setback on that basis alone.

Operator

And therefore, we will maintain, I think, a relatively heavy exposure in absolute terms to The US while looking for opportunities externally. I should say, our underlying managers clearly are looking to take advantage of current market volatility and to, again, within Europe, maybe pick up some of those have already picked up some of those defense stocks that have performed very, very strong in in short order. Good. And on the theme of geopolitics, a very specific question here. Are you exposed to Russia, Russian markets in the trust?

Operator

We do have two holdings, actually, two Russian holdings. They are valued at zero at the present time. And and in the event that there is a change in terms of Russia's access to global capital markets, then there is scope for an uplift in those valuations. But as I said, we do have two holdings currently held at zero in the portfolio. Okay.

Operator

Question here for b. There's been a lot of discussion of shareholder voteings. Do you know what proportion of your shareholders actually turn up and vote?

Speaker 1

We have a voting ratio of about 50 to 55%, which is actually relatively good for the sector. Our main peers are around sort of 26, 27%.

Operator

Okay. Okay. Another question. The the trust has a net zero commitment by 2050. President Trump signed an executive order where The US is definitely moving in the opposite direction.

Operator

Are you reviewing that objective?

Speaker 1

We absolutely did review that objective as a board and discussed it to see whether or not we felt thought that it was still realistic. I think that at the moment, we believe that there is long enough till 2050 to still get there. The world does need to decarbonize. I mean, that is very obvious. And so that's not going away whatever the legislation happens to be in The United States for the next few years.

Speaker 1

And I you have seen that our in our annual report, you will see in our annual report that our our weighted average carbon intensity has actually gone up over the last couple of years. So we have always said to Paul, you know, we want to be responsible investors, but we want our shareholders investment returns to be the first and foremost focus. And so at the moment, we believe that that is still a possible balance to have. It may well change as we get closer to 2050, but at the moment, we are comfortable.

Operator

Good. Thank you. So there's several questions on a similar theme here. One is, how are you taking defensive approaches to your exposure in US and US tech? Do you hedge the currency?

Operator

And the third question, I'm gonna link with this, is enlisting your different exposures, there was no mention of UK value. Do you have any views on on that? Yeah. Okay. I think that's three or four questions in one, Steven.

Operator

So I'll I'll try and remember as we go through this. So firstly, with respect to to The US and what we're doing to to defend values of our I think I think one of the best means of defense that one has in investments is to diversify. So we start from a diversified position. We do have exposure to US growth stocks. We do have exposure to the Magnuson seven, albeit as I said, we are slightly underweight, the index, those areas, and we supplement and complement that with value exposure.

Operator

And I think that starting point of not overly being being overly relying on a specific segment of the market in The US is is sound and should place us in good stead in terms of potential volatility that is to come. As I said also in the presentation, we are balanced between growth and value. So we do not have a particularly large position relative on growth stocks right now. I I we we have in recent years, and it wasn't obvious from the presentation that that I've given today, but but I think it has been obvious in some of the the prior presentations which shareholders may have seen, taken really quite an active approach to management of our growth and value exposure. Having been meaningfully overweight to our growth stocks and conversely meaningfully overweight value stocks in The US, as I said, we have chosen to balance up that exposure.

Operator

I think growth stocks are likely to deliver superior underlying fundamental growth, but clearly there's limited scope for disappointment in terms of valuations. So, hopefully, that gives us a sense of a a response to the first part of the question the first part of the question. Hedge in currencies, we do not hedge currency exposure as a matter of course. However, we have historically taken the opportunity to hedge a portion of currency risk. At the present time, we do not have a position on in terms of a currency hedge.

Operator

It is a very active and frequent discussion with the board. And clearly, as a as a UK based trust that invests in global equities and a large portion of the assets in US equities, we we and shareholders would be exposed negatively to short rise in sterling. That would be detrimental to NAV returns and actually would be detrimental to revenue. So it's point of significant consideration. At the present time, I don't frankly see a compelling case that sterling is going to be a very strong currency against the dollar, and therefore, I don't think that's gonna change in the short term.

Operator

But we there's something that we do pay very close attention to. UK equities, which I think was the the third question. UK equities optically look cheap, which I think was was was the inference from the question as to Europe. In fact, areas outside of The US, equity market in general look cheap. You can look at most most areas, whether it's small cap or large cap stocks, UK, Europe, even Japan now, comparing them to The US and reach a conclusion that that these areas offer value.

Operator

I think there is a difference between the optics and reality. And while The UK and indeed Europe have performed better, and as I said, I would expect medium to long returns on broadening out returns, I struggle to see a a meaningful and sustained bull case for UK equities to outperform global on anything other than value. I don't see a superior growth outcome in terms of the corporate earnings backdrop. I do think we've got some domestic challenges here from a a macro perspective. So we're we're not meaningfully increasing UK equities, albeit I should caveat that with our European exposures predominantly Pan euro.

Operator

So we delegate part of that decision actually to our pan European manager who had a really, really strong year last year in terms of relative returns. So did I capture everything? I think you did. Well done. Remembering all of them.

Operator

So another question here is when you're switching between managers with different styles, and the questioner mentions value versus growth Yeah. And internal and external, what what factors drive that decision? So in terms of the stylistic decision, so I think the way that I think about the the way we construct the portfolio as a starting point is, as I said previously, there's more than one week winning global equities. You can value outperforms in the long run, growth momentum outperforms and quality outperforms. So a starting point of having positive exposure to value to growth momentum and quality is is a good place to be.

Operator

However, what factors drive a move in managers or a move in styles? There's different aspects that one, from a manager perspective, essentially a loss in confidence in process or personnel, and a lack of adherence to, stated philosophy and process. That that doesn't happen very often because when you buy or have exposure to a manager, hopefully, we and we do do the diligence, and the manager has a consistent and persistent approach that will, in the long run, drive some relative value but will, you know, fluctuate through time. So if they deviate from process or there's a fundamental change in personnel, then that will trigger a review. And obviously, flags for that can not only be people leaving, but obviously performance outcomes being different than expected.

Operator

So last year, it's not surprising value stocks and our value managers underperform the S and P, but they meaningfully underperformed comparative indices and there's some style drift, then that's a flag for us to reconsider. From a stylistic perspective, I think there's two aspects that we consider in terms of the value quality growth aspect. One is the macro environment, so what's happening in terms of inflation and interest rates and growth. And in simple terms and and highly stylized terms, when interest rates are rising, inflation is rising, then that might be a better value for environment for value stocks. When growth is scarce, it might be a better environment for growth stocks.

Operator

It doesn't always work out like that, but there is a a cyclical element in terms of performance. And when, you know, you're heading into recession, then quality might outperform or typically outperform. So there's a macro component, but there's also a valuation component, and that is a real live issue right now whereby clearly in recent years, the value spread between growth stocks and value stocks has reached extended levels. And we're constantly again asking yourself, does that is that premium on growth stocks warranted? And that's come in quite a way actually in the last month or so, but that can be a trigger for rotation between the different styles.

Operator

Well, thank you very much. I think our time is up. I'd like to extend my thanks and thanks to everybody to Dean Holland and Paul Niven and most of all to you, our shareholders, for participating in this online event. Thank you.

Powered by Quartr