
16 | F&C Investment Trust PLC
Listed Equities
There was a wide dispersion of returns between our listed strategies,
all of which delivered positive absolute gains. With a return of 23.7%,
North America was highest once again. Europe’s gain of 13.9% was below
those of global indices but significantly ahead of the 3.8% from Emerging
Markets and 2.6% from Japan.
Our North American exposure lagged strong benchmark returns despite
outperformance from our value manager, Barrow Hanley. The 26.5% return
from the value portfolio exceeded the 20.9% from our growth portfolio,
managed by T Rowe Price, even though the comparator growth index led
the corresponding value index over the year. A rise in inflation and interest
rate expectations, along with a favourable recovery in the global economy
and corporate earnings, led to a more balanced outturn within markets
and significant uplifts in both energy stocks and financials as well as long-
term market leaders in disruptive technology.
The US value portfolio benefited from holdings in financials, including
Goldman Sachs, AIG and Wells Fargo which all gained between 50% and
65%. There was disappointment from Altice, the telecoms company, which
suffered from poor net subscribers resulting in a decline of over 50%. Our
holding in Las Vegas Sands suffered largely due to concerns over travel
restrictions impacting the performance of its business interests in Macau
and fears over tightening of Chinese regulatory policies. International
Flavors & Fragrances, a leading producer of flavours and fragrances used in
food and household products was added in our value strategy during the
year. It continues to trade at a discount to historic ratings despite having
steady organic growth, strong cashflows and high barriers to entry.
The US growth portfolio was helped by significant positions in Microsoft
and Alphabet which gained over 50% and 60% respectively. In contrast,
one of our largest holdings, Amazon, had a relatively disappointing year
with only a small positive return. A position in Tesla was added during
the year, but limited exposure to this highly performing stock detracted
from relative returns as the world’s most highly valued car manufacturer
delivered another year of excellent returns, gaining by over 50%,
propelling the market value of the company to over $1 trillion. A continued
underweight stance in Apple, the most valuable company in the world,
was also detrimental to returns as the stock gained by over 35% during
the year and the company became the first in history to exceed $3 trillion
in market value.
After a very positive 2020, our European portfolio again delivered good
levels of return although its overall gain of 13.9% trailed the benchmark’s
17.0%. Semiconductor equipment company ASML again fared well,
producing a return of over 65% in becoming the largest company in
Europe, by market capitalisation. It holds a dominant market position
globally and looks set to benefit not only from a secular increase in
demand for semiconductors in general terms, but also from a drive to
onshore production and increased security of supply. Novo Nordisk, the
world’s largest diabetes pharmaceutical company performed equally well. Its
rise of 65% reflected solid results throughout the year as well as the launch
of obesity drug, Wegovy, for which demand substantially exceeds current
levels of supply. Rotation in leadership within the market led to the winners
of 2020 rapidly becoming the laggards, which was largely characterised by
under-performance of some of the higher growth names, especially online
businesses. Just Eat halved in value while Delivery Hero fell by over a quarter.
Their performance had been boosted earlier in the pandemic and, while they
have faced increased competition and fee caps, the acquisition of GrubHub
by Just Eat was taken negatively by investors.
Japan was a disappointing area in terms of absolute returns although our
portfolio eked out a marginal relative gain, returning 2.6% versus 2.1% from
the benchmark. While the portfolio held an underweight stance in some of
the higher performing areas, such as energy, banks and resources, positive
stock selection offset these headwinds. Zozo, Japan’s leading online fashion
company, was up by around 30% as it found its position structurally
strengthened by economic lockdowns, helping it to grow its user base and
cementing its market dominance. Keyence achieved consecutive record
revenue and operating profit during the year as it continued to benefit
from an acceleration in global automation investment, as companies seek
to make their supply chains more resilient.
While our Emerging Markets portfolio produced positive gains of only
3.8%, this was against the background of a 1.6% decline in broad market
indices for that asset class. China performed poorly, as a regulatory
clampdown on the internet, education and gaming sectors amongst
others created uncertainty over the operating environment for investors.
Limited exposure to index heavyweight Alibaba, which fell by almost
50%, was beneficial although our holding in Tencent was a relative
detractor with a fall of 20%. Elsewhere, our allocation to the Indian equity
market benefited relative returns materially, with Infosys gaining by over
50% and Tata Consultancy Services amongst our best performers, with
both benefiting from the ramp-up of the digitisation of the corporate
landscape. Our holdings in Mexico, including long-term holding Walmart
de Mexico, which controls around 50% of Mexican formal retail and 70%
of profits in that segment, also contributed positively. On the downside,
the largest detractor to relative performance in the Emerging Markets
portfolio despite our holdings in TSMC and Win Semiconductors, both of
which performed well, was the lower than benchmark exposure to Taiwan,
which continued to perform well in 2021. AIA was not directly impacted in
the regulatory clampdown that took place during the year but insurers, more
generally, were shunned on the back of worries of their exposures to the
property sector, which is under pressure concerning missing bond payments
at companies such as Evergrande.
In terms of style exposure, our Global Strategies include components
covering Global Income, Global Smaller Companies, Global Sustainable
Opportunities and Global Quality Value. Together, as Global Strategies, they
delivered an aggregate return of 19.0%. As was the case elsewhere in the