The Lemon Fool

Hi all,

I recently made my debut post here, see: viewtopic.php?f=8&t=35266, asking for suggestions on where I can direct my focus for potential new positions.

There were some mentions of FCIT, which I have seen mentioned in other threads with the subtext being that FCIT is a good option to form part of a balanced portfolio.

I've looked at the past performance, underlying holdings and their respective composition within the fund and all readily available metrics I would often use to make an investment decision. I can't help but view FCIT as a slightly underwhelming option for someone looking to take out a position.

I also have concerns (maybe not the right word) about their top holding: PE Investment Holdings 2018. Maybe in naivety or misunderstanding, this conjures memories of the Woodford fund being tied up in illiquid assets.

I defer to the plethora of more experienced investors here to set me straight.

Why is this IT so well regarded?

Have I misunderstood FCIT's top holding and it's implications?

FCIT is best viewed as a relatively cheap global equity fund with a number of advantages over global trackers, mainly arising from the Investment Trust structure.

1) The opportunity to buy at a discount.
2) Returns over long periods enhanced by cheap leverage.
3) Stable and rising dividends.
4) The efficiencies of permanent capital.

The last is important for understanding the PE holdings. Unlike Woodford, FCIT have two advantages. Firstly, they have been investing in PE for years. Secondly, they will never be a forced seller.

PE Investment Holdings 2018 is vehicle through which F&C holds a variety of private equity; "Primary PE fund investments are held through the Company while secondary or co-investment opportunities are held through PE Investment Holdings 2018 LP (‘PE LP’), an investment vehicle in which the Company is the sole Limited Partner"

I presume there is a good organisational reason for this structure. The total private equity holdings of F&C are about 10%, so it's not a huge part of the trust.

https://www.bmogam.com/uploads/2021/07/ ... t-2021.pdf

elephanthunt11 wrote:I also have concerns (maybe not the right word) about their top holding: PE Investment Holdings 2018. Maybe in naivety or misunderstanding, this conjures memories of the Woodford fund being tied up in illiquid assets. ..

Have I misunderstood FCIT's top holding and it's implications?

F&C's largest investment is Microsoft. 2.2% of total assets according to F&C's latest factsheet. PE Investment Holdings 2018 isn't on F&C's list of its 20 largest investments.

F&C can't get caught out like Woodford. The problem with Woodford's fund, asides from deviating massively from its mandate, was that it held way too much unquoted and illiquid investments.

When Woodford's investors wanted to sell, his fund had to raise the cash which meant selling its more liquid investments. Which increased the proportion of illiquid investments in the fund.

Investment Trusts like F&C can't be caught out in the same way. If investors want to sell they do so in the stockmarket. F&C doesn't get involved.

Why buy F&C? Decent long term record, low management fee, buying assets at a discount (so you get a higher income than an open-ended fund with the same portfolio).

SalvorHardin wrote:

elephanthunt11 wrote:I also have concerns (maybe not the right word) about their top holding: PE Investment Holdings 2018. Maybe in naivety or misunderstanding, this conjures memories of the Woodford fund being tied up in illiquid assets. ..

Have I misunderstood FCIT's top holding and it's implications?

F&C's largest investment is Microsoft. 2.2% of total assets according to F&C's latest factsheet. PE Investment Holdings 2018 isn't on F&C's list of its 20 largest investments.

F&C can't get caught out like Woodford. The problem with Woodford's fund, asides from deviating massively from its mandate, was that it held way too much unquoted and illiquid investments.

When Woodford's investors wanted to sell, his fund had to raise the cash which meant selling its more liquid investments. Which increased the proportion of illiquid investments in the fund.

Investment Trusts like F&C can't be caught out in the same way. If investors want to sell they do so in the stockmarket. F&C doesn't get involved.

Why buy F&C? Decent long term record, low management fee, buying assets at a discount (so you get a higher income than an open-ended fund with the same portfolio).

Thank you for that. You've cleared up a misconception I had between the different type of funds.

I accept the discount to NAV piece, again, maybe this just exposes a knowledge gap I have with regard to ITs but, if the market prices FCIT at a discount to NAV, then surely given the fact that has been priced in means that it's value, as determined by the market is lower and therefore not to be taken in to account....I don't know... I need to do some more research of premiums and discounts. If you can understand where my (lack of) understanding is through the above incoherence, help me out lol.

Lastly - I got their top ten holdings from these sources https://citywire.co.uk/funds_insider/in ... undID=2915 and https://www.hl.co.uk/shares/shares-sear ... st-ord-25p which both list Pe Investment Holdings 2018 as their top position.

EthicsGradient wrote:PE Investment Holdings 2018 is vehicle through which F&C holds a variety of private equity; "Primary PE fund investments are held through the Company while secondary or co-investment opportunities are held through PE Investment Holdings 2018 LP (‘PE LP’), an investment vehicle in which the Company is the sole Limited Partner"

I presume there is a good organisational reason for this structure. The total private equity holdings of F&C are about 10%, so it's not a huge part of the trust.

https://www.bmogam.com/uploads/2021/07/ ... t-2021.pdf

Thank you very much, I'll look in to this further.

GSCT (smaller cap) charges are
Annual Charge: 0.55%
OCF: 0.78%

FCIT
Annual Charge: 0.35%
OCF: 0.59%

Comparing GSCT (formerly BGSC) with FT250 and the likes of VMID (Vanguard) - that has lower costs/charges, in total returns terms I broadly see little differences. IIRC others have found similar when comparing FCIT with Vanguard World stock alternative ETF choices.

Seems to me that you get active management, leverage/deleverage timing etc. that broadly covers their fees/costs.

BMO has a excellent long term reputation, however more recently BMO are no longer managing European based clients accounts - that has been handed over to Columbia Threadneedle, a American subsidiary - that IMO is higher risk (more inclined to see future changes/disposal and potential need to sell and incur a capital gain tax hit).

Bit of a coin-flip whether to go with ETF (Vanguard) or Columbia Threadneedle, of the two I'd be more inclined to favour the former (low cost, investors in their funds are also the owners structure).

FCIT is on a 8% discount to NAV recently, but equally has around 7% net gearing. I think trading the premium/discount to NAV isn't a simple free-lunch but involves other factors that direct that premium/discount pricing.

elephanthunt11 wrote:Thank you for that. You've cleared up a misconception I had between the different type of funds.

I accept the discount to NAV piece, again, maybe this just exposes a knowledge gap I have with regard to ITs but, if the market prices FCIT at a discount to NAV, then surely given the fact that has been priced in means that it's value, as determined by the market is lower and therefore not to be taken in to account....I don't know... I need to do some more research of premiums and discounts. If you can understand where my (lack of) understanding is through the above incoherence, help me out lol.

Lastly - I got their top ten holdings from these sources https://citywire.co.uk/funds_insider/in ... undID=2915 and https://www.hl.co.uk/shares/shares-sear ... st-ord-25p which both list Pe Investment Holdings 2018 as their top position.

Discounts to NAV arise because of investor demand for the shares and future expectations. Generally discounts get larger when markets fall and shrink when they rise, mostly due to changing investor demand for the shares.

F&C shares are 878p as I type this, so that's what the market thinks they are worth. The latest NAV per share is about 938p so the discount is 6.4%. So investors are getting 938p of assets working for them for their 878p.

The ability to buy shares at a discount is attractive to many investors because you get more assets working for you for the money. A good example of a large discount is Caledonia Investments which nowadays trades at a discount of around 20%. £800 invested in Caledonia gets you £1,000 of assets working for you; the same invested in a hypothetical open-ended fund that mirrored Caledonia only gets £800 working for you.

I bought most of my shares in Caledonia when the discount widened to about 40% during the 2008 financial crisis.

Based on what EthicsGradient has found, PE Investment Holdings 2018 looks to be a wholly owned (by F&C) holding company for F&C's unquoted investments. I wouldn't be concerned about it; it's the Investments which it holds that count.

elephanthunt11 wrote:

EthicsGradient wrote:
The total private equity holdings of F&C are about 10%, so it's not a huge part of the trust.

https://www.bmogam.com/uploads/2021/07/ef0a03579270a9358cefa55c43f0b0c8/fcit-annual-report-2021.pdf

Thank you very much, I'll look in to this further.

Just a quick note to say that whilst the total Private Equity exposure for FCIT was around 10% as shown at the end of the 2021 period in the above linked PDF, that has now risen to around 13% when they reported at the 2022 half-year mark on Monday 25th of July -

https://www.investegate.co.uk/f--38-c-investment-trust--fcit-/rns/half-year-report/202207250700055138T/

Cheers,

Itsallaguess

One more thing to add to the excellent comments so far. I find when looking at holdings within a fund or investment trust, it often pays to download the latest factsheet from the manager's website. Relying on 3rd party data is not a great idea to base final decisions on as I find sometimes it can be well out of date. Hope that helps.

BullDog wrote:One more thing to add to the excellent comments so far. I find when looking at holdings within a fund or investment trust, it often pays to download the latest factsheet from the manager's website. Relying on 3rd party data is not a great idea to base final decisions on as I find sometimes it can be well out of date. Hope that helps.

I could not agree more. It constantly amazes me that people do not go to the IT website itself and get Annual and Half yearly Reports as well as the monthly fact sheets and the various RNSs. The horse's mouth so to speak.

Dod

The RNS feed for FCIT (I like 'investegate' for such) will show that when there is a discount they are a buyback machine. Chomping into their own shares pretty much daily.
A simple mathematical process but effective.

W.

elephanthunt11 wrote:Hi all,


There were some mentions of FCIT, which I have seen mentioned in other threads with the subtext being that FCIT is a good option to form part of a balanced portfolio.

I hold FCIT, along with a spread of other ITs, OEICs, and ETFs.
Why do I hold FCIT? It is a large, long established IT with a very large range of global investments. A reasonable comparison would be a Global Tracker ETF - e.g. Vanguard VWRL (which I also hold). Over 5 years, the total return of FCIT is 58.91%, while VWRL has managed 55.61%. If you would prefer a global fund which is more selective, then I also hold Fundsmith Equity - an OEIC. It has returned 74.7%, but it has been more volatile.
I'm not sure what you mean by "holding a position" - how long will you hold a position, and can you hold your position over a substantial downturn? Equity investment is always subject to risk, but probably (on past performance) FCIT has reasonably followed the Global Investment Market with a slightly higher return than a simple tracker.

I know that many of us use the tools on the Hargreaves Lansdown Site (free of charge) to make decisions on our investments. So I'll repeat the slightly convoluted formula, as to how you can plot ITs, OEICS, ETFs and company shares, all on the same page - just in case you haven't used it. From the Hargreaves Lansdown main page choose Funds - and select an OEIC - e.g. Fundsmith Equity Class I. From the displayed page, select Charts & Performance. The Fundsmith 5-year graph will be displayed, and you can choose other Funds (i.e. OEIC/Unit Trust/IT etc), or alternatively an Equity, Sector or Index. As well as the graphs you will also see the numerical performance over 5 years. If you have a look at FCIT vs VWRL, you will see that they follow one another fairly reasonably, with FCIT usually a little bit higher. If you want to see a high flyer with high volatility - have a look at Scottish Mortgage (SMT) which I also hold.

FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

Are you saying that you basically have a one share portfolio?

Dod

Dod101 wrote:

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

Are you saying that you basically have a one share portfolio?

I suppose the idea is that you can run a one-share portfolio as long as that share is some kind of global fund or tracker.

It seems to me that something like FCIT could make sense as the first share you buy. But if you already have a globally balanced portfolio of some or many shares/funds, then adding FCIT won't do a lot more for you.

So perhaps it makes sense for beginners and for those who don't want a number of holdings to manage?

Lootman wrote:

Dod101 wrote:

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

Are you saying that you basically have a one share portfolio?

I suppose the idea is that you can run a one-share portfolio as long as that share is some kind of global fund or tracker.

It seems to me that something like FCIT could make sense as the first share you buy. But if you already have a globally balanced portfolio of some or many shares/funds, then adding FCIT won't do a lot more for you.

So perhaps it makes sense for beginners and for those who don't want a number of holdings to manage?

What are the perceived/actual risks of FCIT, a form of conservatively managed active index fund, compared to a passive/mechanical ETF index fund such as a 'world' index?

If one owns their own home, say £600K value, imputed rent benefit; Has perhaps £24K/year inflation linked pension income - that at a 4% assumed rate = £600K value; And £600K in FCIT, that at 1.5% dividend yield generates £9K ... then £33K/year with all 'rent' paid/liability matched = diversification of thirds each land/stock/bond type asset allocation. Under such a situation a choice of 100% FCIT would seem perfectly reasonable to me.

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

Great..for all those bicentennials amongst us!

Lootman wrote:

Dod101 wrote:

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

Are you saying that you basically have a one share portfolio?

I suppose the idea is that you can run a one-share portfolio as long as that share is some kind of global fund or tracker.

It seems to me that something like FCIT could make sense as the first share you buy. But if you already have a globally balanced portfolio of some or many shares/funds, then adding FCIT won't do a lot more for you.

So perhaps it makes sense for beginners and for those who don't want a number of holdings to manage?

I think that is right. I stared off by buying Alliance Trust for myself and Second Alliance for my wife just to get me started. They were subtly different and gave me a reasonable insight into investing. I think FCIT is probably more widely spread now than either of two I mention were in the early 1990s.

Dod

1nvest wrote:

Lootman wrote:

Dod101 wrote:

LooseCannon101 wrote:FCIT is a one-stop shop if you are looking for a world equity portfolio.

The average returns of 8.2% per year over 154 years has turned £100 into £18m.

The average retail investor does much worse than this with returns perhaps only 4.1% per year - if they are lucky, due to buying high and selling low. Taking inflation at 3%, the shareholder of FCIT is effectively increasing their wealth by 5.2% per year. The hardest thing for a novice investor to do is to sit on their hands for the next 20+ years.

I have been sitting on my hands and doubled my money every 9 years. The rule of 72 is useful - 72/average annual percentage increase = number of years to double.

I have about 98% in FCIT and the rest in cash.

Are you saying that you basically have a one share portfolio?

I suppose the idea is that you can run a one-share portfolio as long as that share is some kind of global fund or tracker.

It seems to me that something like FCIT could make sense as the first share you buy. But if you already have a globally balanced portfolio of some or many shares/funds, then adding FCIT won't do a lot more for you.

So perhaps it makes sense for beginners and for those who don't want a number of holdings to manage?

What are the perceived/actual risks of FCIT, a form of conservatively managed active index fund, compared to a passive/mechanical ETF index fund such as a 'world' index?

If one owns their own home, say £600K value, imputed rent benefit; Has perhaps £24K/year inflation linked pension income - that at a 4% assumed rate = £600K value; And £600K in FCIT, that at 1.5% dividend yield generates £9K ... then £33K/year with all 'rent' paid/liability matched = diversification of thirds each land/stock/bond type asset allocation. Under such a situation a choice of 100% FCIT would seem perfectly reasonable to me.

I am not saying it is not reasonable but I am not sure that I would want it as my only share for the long term. It is not a tracker, it is, at least in theory, an actively managed investment trust and whilst it has a good culture I think, it is a different beast from say 30 years ago.

Dod