F&C Investment Trust PLC (0XW.F) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the F&C Investment Trust plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review questions submitted today and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. If you'd give that your attention, I'm sure the company would be most grateful. And now I'd like to hand over to the head of the investment trust, Christine Cantrell.

Thanks, and good morning, everybody. We're delighted to be here, and it's the oldest investment trust adopting modern ways to communicate with shareholders, so we hope that everybody will engage in asking questions because this is really your time with the lead portfolio manager, Paul Niven, who's going to present, and so he has quite a lot of materials to go through and go through the first half of 2024's results, including portfolio changes, performance, gearing, dividends, et cetera. And I'll just highlight that, and it's very apt that he'll also comment on his 10-year tenure of running F&C. So yes, it's great to have you here, and I'll hand over to Paul now for asking questions later.

Okay. Great. Thanks, Christine, and good morning, everyone. Thanks very much for calling in to this webinar. I'm going to do 2 things. One, I'm going to cover the interim results, our results for the year to the end of June that we just released this morning, make some comments about what we've delivered for our shareholders over that period. And I'll give some thoughts on current market perspective, how we see the rest of the year, and indeed the longer-term progressing in terms of opportunities for us and indeed for you from an investment standpoint. So as Christine said, this is your opportunity to ask questions. We will leave time at the end to get through as many of them as we can. And again, as she said, we've got a lot of content to get through. So I'm going to run through a number of these slides with respect firstly to the context of F&C as an investment trust, then on to our results and then market outlook. We are the oldest, as Christine said, oldest investment trust in the world. We're a member of the FTSE 100 index, our market cap exceeds GBP 5 billion. In recent decades, we've been focused on growth assets, that's equities and private equity. The overriding objective and aim of the trust is to provide growth in capital and income for you as shareholders through exposure to listed and unlisted global growth assets. That's listed equity and private equity. We use an approach of blending across different active strategies within private and public markets, each of which is relatively focused. But the principle is one of diversification, looking to smooth the performance outcome for you and navigate volatile markets by providing a relatively smoother performance journey for you, our shareholders. We have made a commitment to a net-zero carbon portfolio by 2050 or earlier. The outcome we look to deliver is consistency in terms of performance delivery and value for money, and our OCF ongoing charge is 0.49%, which we think is very competitive, certainly relative to our peers. Briefly, there's a lot of detail on this slide, but just in summary, this gives a perspective about the exposure that we have in terms of underlying strategies. So regional equity strategies in the top half of this table, then some global strategies, all of which are separate accounts where we hold the stocks directly, where we use experts from within Columbia Threadneedle Investments or indeed from across the market to source and select best opportunities in a particular region or with a particular style. So for example, right at the top there, we've got JP Morgan Asset Management. They run a large part of the portfolio. They are focused on growth stocks. In the U.S., they've got around 60 holdings and around 25 of those stocks are unique, i.e, not held anywhere else in the portfolio. Similarly, we've got an external manager in Barrow Hanley running a value strategy for us in North America. So we can blend these components together in a manner that essentially adds to return or reduces risk, i.e., following that principle of diversification. And then we've got private equity exposure as well. Pantheon, as I'll discuss, running a program for us investing in leading venture and growth managers, hard to access brand name managers in that space and then focused predominantly on mid-market opportunities for -- from Columbia Threadneedle investments in terms of funds and co-investments. So I'll give some comments on performance of these components going forward. But that's, albeit quite detailed, a snapshot of the overall strategy allocation. I'll talk about the geographic allocation as we go through. So our interim results were released this morning. So that is the 6 months to the end of June. We delivered a return of 6.4% for shareholders. Our NAV, net asset value, total return was 13.2%, and that exceeded the benchmark return as the FTSE All-World index of 12%. So the underlying performance of the portfolio, as I'll show you, and of the net asset value return exceeded that of the benchmark. So a good return in absolute terms, outperformance against the benchmark, but clearly, shareholder return was lagging, and that was a function of a widening in the discount. And I'm going to spend some more time talking about this shortly, but the discount moved from just under 6% at the start of the year -- that's discount, share price discount, to net asset value -- moved from just under 6% to just under 12%. And we bought back 10.2 million shares during that period. Net asset value -- sorry, net revenue return per share increased by 10.9% year-on-year compared to the first half of 2023. So again, really good progress in terms of our revenue account, our income. And that obviously helps to fund our dividend. And we delivered outperformance in our listed equity holdings -- again, I'll go give some more detail on this -- despite us holding an underweight position in those largest stocks, which really drove the market in the first half of the year, so what have become known is the Magnificent 7, which includes such names as Apple, Microsoft, NVIDIA and so on. So it's a very concentrated market, narrow market, U.S. leading the way, and within the U.S. a small number of stocks in -- we're actually underweight those very largest stocks, as we'll explain in a moment. We still delivered outperformance. And private equity returns lag strong listed market returns, so private returns or returns to the private market space lagged returns from listed equities. So that was somewhat detrimental to our return. But overall, a good return in NAV terms, 13.2% against 12%, as I said. Our first interim dividend was announced, so that was 3.6p per share, and the Board committed to another rise in 2024. That will be the 54th consecutive annual rise in dividends that we will deliver for shareholders. So those are the highlights. I'm going to go into a bit more detail. So this slide, left to right, essentially builds up that NAV total return. So the portfolio, that's our portfolio of investments, delivered a return of 12.2% in aggregate, slightly ahead of benchmark. Gearing, the fact that we had borrowed to invest in a rising market, that was additive to returns, that added 0.8%. The fact that we bought back shares at a discount, as I said, 10.2 million shares at a discount to net asset value, that added to net asset value return. The fact that market interest rates rose over the period reduced the volume of our outstanding debt, that added modestly to our NAV as well. And then detracting were management fees and interest and other expenses. You add up those components on the left hand side of this chart and you get to the NAV total return I said, of 13.2%. What was disappointing clearly was that change in discount, the move from 5.9% to 11.7%, and that detracted from shareholder returns. So shareholder total return was 6.4%. So the NAV ahead of benchmark, the shareholder return behind. A lot of text on this chart, I apologize for that, but I'm going to draw out a few highlights, and I'm going to follow this up with some tables in a moment. Very narrow market, artificial intelligence, AI, a key theme that investors were responding to. That was the case in the latter part of 2023, also the case in the first half of 2024. Technology stocks leading the way, ongoing enthusiasm about that AI theme driving not just those very largest stocks, but actually a number of related areas as well. In addition, from a broader macro perspective, I would say that there was a general fall of inflation, which was good in the sense that clearly that gives greater confidence in terms of rate cuts by central banks. However, there was quite a marked repricing or reassessment in the market about both the timing and magnitude of rate cuts. So in other words, we came into 2024 with markets very optimistic about the speed and scale of rate cuts in the U.K., in Europe and in the U.S., and while rate cuts are still expected, the timing has been pushed out and the magnitude of rate cuts has also been pushed out. So it was good news, lower inflation, expectations of rate cuts, and growth remained reasonably robust actually. It looks very much like we have achieved a soft landing in the U.S., i.e., slow down without recession, and that's a good backdrop for financial assets. And equity markets performed accordingly, as I said, so a strong period for listed equities. Private equity, in aggregate, delivered a return of 6%. So that was quite meaningfully behind listed markets. But I actually take quite a lot of encouragement from that performance, for reasons that I'll elaborate on in a moment. Back in 2023, our performance was broadly flat in private equity, and therefore, again, lagging listed markets, and that was a detractor from relative returns. But 6% in absolute terms is a reasonable return. And we are seeing signs of progress in valuation in our private equity holdings and also signs of progress in terms of realizing some of those investments, i.e., selling some of those investments to other parties and realizing cash returns. So again, I'll talk about that more. So private equity lagging, but I think actually good progress over the period. Our listed equity holdings outperformed the benchmark; if one strips out just the listed equity holdings, they delivered return of about 13.1% against that benchmark return of 12%. A few other points that I would draw out: really good performance within certain segments of the market, particularly in North America for us, and growth stocks, i.e., those that are exposed to faster earnings growth and the prospect of significant improvement in terms of the earnings outlook, performed very strongly, again driven by technology. The Russell 1000 Growth Index returned just under 22% in sterling terms. That's the comparative growth index. [indiscernible] managing that space, JPMorgan delivered a return of 25.7%. So really strong returns from U.S. large cap growth, better than the market. But what was also encouraging was, for example, in terms of our value exposure, those cheaper, perhaps slower-growing stocks delivered good levels of return. Barrow Hanley delivered a return of 10.9%, the internally managed structure that we have returned a 8%. They both exceeded the value index, the Russell 1000 value index, which returned 7.6%. So growth beat value within the market -- so in the U.S. market, I should say. And -- but our strategies within the U.S. exceeded both relevant comparator indices, i.e., our growth manager beat the growth index and our value managers beat the value index. So that was encouraging. Europe also performing well in certain components, not every [ Europe ] within our global strategy is also delivering very strong on the [ global ] focus, which is a quality growth mandate, again focused on high-quality businesses with what we regard as wide moats or a protected position in terms of their competitive standing with fast growth prospects, they delivered -- that strategy delivered 18.6%. So well ahead of the global benchmark return of 12%. In a bit more detail -- and again, there's a lot of text on this slide, but a bit more detail, and to this point about the Magnificent 7 stocks. We started the period with an underweight stance. So if you strip out all the equity holdings and think about how much in the benchmarks is in those Magnificent 7 stocks, that's about 16.5% -- or was about 16.5% at the start of the year. We had about 12%, 12.2% in those 7 names at the start of the year. So we were light in exposure terms, with the exception of Alphabet, where we had a small long, and we ended June with a slightly bigger underweight position against the market and an underweight position in every region. But despite that underweight position and despite the strength of returns from that area or that cohort of stocks, we made good levels of return, as I said. Vertiv, which is held by Barrow Hanley, did extremely well. They essentially provide cooling solutions amongst other aspects to data centers, so they benefited from the AI theme although they're not a producer of semiconductors, for example. Broadcom produced a return of 46%. TSMC, which is involved in the chip production business, 56%, and so on, as well as positions in pharmaceutical company Eli Lilly, and then an underweight stands in Tesla. So despite the fact that we were underweight those very largest stocks in the market which had a phenomenal return, with NVIDIA again being a standout in that space -- they [ gained ] by 152% almost in sterling terms -- we still managed to deliver excess returns, as I'll talk about in a moment. We've got a relatively balanced position between value and growth in the portfolio, for reasons I will explain. So this gives a perspective about the underlying performance in the first half. And this will give all the granularity. Some of that is in the preceding slide within the text. But essentially, this shows the allocation that we had in aggregate to North America within the equity space, how much we had in Europe, Japan and so on, what the look-through exposure is, because obviously, when we allocate to global strategies, some of that global allocation is in turn invested in the U.S. So there was 41% invested in North American strategies, but our economic or look-through exposure was actually about 63% at the portfolio level at the end of the first half. Portfolio performance, as I said, 2% excess return within North America, very strong returns from that component of the market, value and growth exposure both performing well. Europe, again, another standout area for performance, 10.4% against 6.5%. Japan was just slightly behind. Good performance in local currency terms, the yen was very weak. That's reversed actually to some extent, at least partially, in the last 24 hours with the Bank of Japan raising interest rates there. Developed -- sorry, emerging markets was an area of disappointment in terms of performance, lagged in absolute and in relative terms where global strategies was broadly in line. Private equity, as I said, 6%, good in absolute terms, but behind listed market equivalents. And that cost us in relative performance terms. Just briefly in terms of allocations and to [indiscernible] certain of the changes that we've made in the portfolio, again, a lot of information on this slide, and I hope you can read this at your leisure. But this shows the year-end and half year-end position from December 2020 through to June 2024. So you got year-end positions and then the most recent end of June position in terms of how much we've got in U.S. growth stocks, how much were in U.S. value stocks, how much were in Europe and so on. And what I would say is, in recent years, we have made some quite substantial changes or movements between U.S. growth and U.S. value in particular. So when one thinks about 2020, we were very long of U.S. growth stocks. We moderated that stance, actually ended up being longer value. That served us very well when growth actually quite material setback. But we're much more balanced in terms of exposure between growth and value stocks in the U.S. at the present time. Emerging markets has been an area where we've had relatively light exposure, obviously an area of relative disappointment. And private equity, towards the right-hand side of the chart there, is currently sitting around the 10% level in terms of overall allocation exposure on the trust. On private equity, just adding to the points I made previously, we've got different components within private equity, and many of you listening today will be familiar with the long history that we have of investment in the private equity space. So in recent years, we have sourced and selected a portion of the portfolio through Columbia Threadneedle Investments, has a team in Edinburgh run by Hamish Mair, again, many of you would be familiar with him, who helped me in terms of sourcing and selecting opportunities in terms of fund investments, primaries and secondaries as well as individual co-investments. That component gained by 3.6% in the first half of the year. The legacy holdings, those are very old holdings that we still have in fund of funds, fund or private equity funds, that Pantheon and Harbor Best manage for us. Those commitments were made between 2003, 2008, so I said they're legacy, they're old. They're small as a portion of the portfolio, but they did see some progress as well. They've got a couple of small, listed, what I'd consider private market exposure in Syncona, which had a disappointing period, and [ Schiehallion ]. { Schiehallion ] did a very good period, and having previously performed relatively poorly actually in 2023. Pantheon, as I mentioned earlier, also manage exposure to leading venture and growth managers. It's really hard to access preeminent players in the venture and growth space, primarily in the U.S. We've got 2 programs, 1 that we started in 2019, 1 that we started in 2022. The combined AMEV or asset value exposure of those portfolios was GBP 131 million at the end of the first half, and we made a roughly 10% return. So reasonable progress. To my point about good progress in the private equity portfolio overall, within that CT or Columbia Threadneedle investments component, we saw some good realizations. So examples here, Jollyes, which is a pet supply retailer, you might see them if you go to an [indiscernible] shopping center, they've got a bunch of stores that sell pet supplies. We had a position in that company. We made 3.7x return on investment since we committed in 2018, that returned just under GBP 29 million. We also sold a position in a company called [indiscernible] which is involved in cleanup of oil and gas wells for GBP 23 million. So again, we're seeing progress in terms of capital coming back and being able to realize some of these investments, which again, I think, is good in terms of the outlook for that segment of the portfolio. Just briefly in terms of revenue and dividends, good progress in terms of our underlying revenue, just under 11% in the first half of the year. We continue to hold a substantial revenue reserve at 19.6p per share. Compare that to our full year 2023 dividend of 14.7p, and that tells you we're in a really, really good position. And we've got -- certainly had in 2023, a covered dividend, but that revenue reserve is substantial, and the Board have made a commitment to deliver another rise in dividends for shareholders in 2024. I want to spend just a minute on our discounts. So clearly, it was disappointing to see a widening in our discount from 5.9% to 11.7%, as said, in the first half. This chart reflects a longer-term perspective in terms of discount levels. As many of you will be aware, we reached a premium, issued shares in 2018. We issued shares in 2019. COVID hit, the discount widened. We actually were trading, though, at premium again, about 18 months ago. So it's really disappointing to see that recent widening in discounts. We've not been alone, but it's clearly wider than I and the Board would like to see. We stepped up level of buybacks, 10.2 million shares in the first half. That compares to 8.6 million in the whole of 2023, so more in the first half than we did in the whole of last year, and we have bought back 4.2 million shares in July. And our discount in the last few days is trading around the 7% to 8% level. So it's still wider than we would like, but the Board are really committed to using buybacks to reduce volatility, to get us closer to net asset value in terms of share price, and because it's accretive to NAV -- it enhances NAV when we buy shares at discount, and it's the right thing to do for you, our shareholders. In addition, I should say, this is not the only tool that we have. We're obviously out there promoting, marketing the benefits and investments in the trust not only to existing shareholders also to prospective shareholders to create more demand. So we look to see further progress in the discount from what was a disappointing half year point. Here briefly, this shows the overall exposure of the portfolio as at the end of June, including liquidity and including private equity on the left-hand side there. So the majority of portfolio is in North America, and why that number differs from what you saw slightly earlier on was because earlier on didn't include liquidity; this chart does. On the right-hand side there, you can see the exposure within listed equities. Now I'm very conscious of time, so I want to make a couple of points on performance during the first half. As Christine said, this is -- [ indiscernible ] responsibility for the trust first of July 2014, so just over 10 years ago. And this gives a shorter or longer-term perspective. And I think you can assess performance in a number of different ways. Clearly, long-term objective is growth in capital and income. We're delivering very well on that objective. You can see the last 5, 10 years, we're delivering 9.4% per annum return to shareholders. 5 years, 12.3% per annum over the last 10 years. Our net asset value returns are also strong. But you can think about absolute, you can think about relative clearly. And we've got a competitive landscape. We compete against closed-ended funds. So what's encouraging, I think, is our returns against the closed-end comparators are first or second quartile overall the time period shown here, 1, 3, 5, 10 years. Obviously, shareholder returns somewhat diminished in the short term by that widening discount, which I hope will be temporary. And open-ended comparators were well ahead of open-ended comparators. So a much wider universe of global equity funds, we're doing very well against them, and we're delivering excess returns against the market benchmark in what's been a -- I would say has been a tough market, a narrow market. I think we've done relatively well over the short, medium and longer-term perspective in performance terms. So I guess, moving on to the outlook, and again conscious of time, I'll make a few points and refer to a few slides before I pass over for questions. We do expect rate cuts, obviously the ECB, European Central Bank, has already cut rates. By contrast, the Bank of Japan actually raised interest rates, albeit from the 0 bound, yesterday, but Bank of England a bit of a coin toss, the Fed probably likely to push through a rate cut in September, but rate cuts are going to be forthcoming this year for major developed central banks. The outlook from a fundamental perspective looks relatively constructive, I think: declining inflation, reasonable growth, that is a reasonably good background. Risks: politics, in the U.S. primarily. The odds in terms of Republican/Democrat presidency have changed quite materially in the last few weeks as a result of Biden's withdrawal from the race. It looks, again, very much now a coin toss, whereas previously Trump looked like he had a 2/3 probability, if you take betting markets as an indicator, you look at 2 policy of winning. And clearly, he has got some pretty strong views and policies with respect to tariffs, which may have implications in terms of emerging markets and growth and inflation, actually, more broadly. Geopolitics, again, last few days should remind us all that there are clear risks within the Middle East, primarily with respect to conflict there and what that might mean not only for commodity prices -- not going to impact on growth and inflation -- but also risk appetite. So there are clear risks. There are always risks though. I would say the fundamental backdrop looks reasonably sound. That said, it's been a narrow market. That presents 2-way risks. What I would say is that, on the one hand, value looks cheap. The U.S. market looks pretty expensive, outside the U.S. looks relatively cheap. But growth stocks, those growth stocks that have led the market, would typically be expected to benefit from rate cuts. They have been delivering superior earnings growth. And that AI theme is likely to persist, I think. We do, however, remain underweight those very largest stocks in the market. For private equity, I think we've seen some good progress year-to-date, albeit by unlisted markets, and I expect that progress will continue. I'm going to rattle through just a few slides to draw a little bit more color to some of those points. And this here just shows some of the things that we are thinking about. Are we getting rate cuts? Yes, how deep they are going to be will give you a sense about where the market pricing is, Are we seeing recovery in U.K. and Europe? Well, Europe is a bit turgid, to be honest. The U.K. is actually performing better than expected. Equity market concentration is an issue, clearly, narrow market, narrowly concentrated in terms of market capitalization. Now we do think there's going to be opportunities outside the U.S., and the case for diversification, I think, very much is intact, certainly, given potential risks that arise from concentration and valuation. So reflecting on where we've come and where we are in the last few years, this shows rebased to 100 for first of January 2021 developed markets, emerging markets and China. So the story is basically being developed has beaten emerging. China has lagged emerging, and the U.S. has exceeded returns within the developed space. The U.S. has been the dominant and preeminent market, emerging markets lagging and China within that cohort being particularly disappointing. It's been a narrow market. We can think about the narrowness in different ways in terms of percentage of market cap or how much of returns are contributed from a narrow segment, but this shows U.S. outperforming was in the previous slide. This is from the beginning of 2023. This shows you market capitalization. So what you typically look at when you look at the S&P, which is the bellwether U.S. index, that's up almost 50% since the beginning of 2023, really strong returns. And then an equal weighted measure of the S&P or U.S. market returns, so stripping out this point about concentration. So it's the biggest stocks. In other words, in more plain English, it's the biggest stocks that have led the way, and that is reflected in equal weighted indices in the U.S. underperforming market cap-weighted indices. And within that, it's been those biggest stocks now, the FAANGs, the Magnificent 7, how are you going to think about the Amazons, the Alphabets, the NVIDIAs and so on that have really led the way. They've outperformed not only the S&P, but clearly be equally weighted index as well and led the way in global markets. Where has that led us to in terms of valuations? Well, to repeat the point, valuations in the U.S. look relatively high. You can look at it in different ways, PE ratios, price/earnings ratios, price-to-book ratios, enterprise value-to-EBITDA ratios. Wherever you cut it, the U.S. looks like it's trading at premium rating. And a chunk of that is a function of the market composition. So the U.S. has got a lot higher exposure to those faster-growing areas within technology and elsewhere, the higher return on equity, higher profitability levels, overall faster growth, a much bigger segment of the U.S. market. That's one reason why the U.S. is trading at this premium rating. The rest of the world looks around fair in some instances, slightly cheap relative to history, but the U.S. is relatively expensive by virtue of the exposure to those faster-growing companies. Now in macro terms, this again gives a perspective on the 2024 growth outlook on the left-hand chart there and how that's changed through time, and in the right-hand chart, what the expected growth outcome is for 2024 and 2025. So there's a few points. One, the U.S. essentially won the growth rates in 2024 in the developed markets, and you can see that it came from behind. So that's reflected in the left-hand chart there, that blue line going up. So people are becoming more optimistic about the U.S. growth outlook and less worried about recession. But looking at the right-hand chart, you can see that the expectation is that the U.S. is going to moderate. There's going to be some slowdown, and we're seeing that coming through now. You're seeing that with some moderation in the U.S. consumer, some loosening in the labor market. That's not bad news actually, because that reduces some of those inflation pressures arguably. You're seeing an improvement in the prospects, however, for the European growth outlook and also from the U.K. and emerging markets, which in real terms is expected to deliver a superior growth outturn for GDP to developed, some improvement in growth in 2025. So divergence in growth prospects, U.S. slowing down, other areas seeing a slight uptick in growth actually, but the U.S. in absolute terms winning, as it were, in developed market space in 2024. This shows you that, again, over the last year or so, the U.S., which is the lighter blue line there, had generally been beating expectations. When these lines are above 0, it tells you that the economic picture is better than people expect. But more recently, interestingly, the U.K. has been doing better. The U.K. is certainly exceeding expectations in terms of the economic releases, and that's the green bar there. So better-than-expected U.K. growth coming through. Inflation coming down everywhere to varying degrees, getting closer to target, and that's going to enable rate cuts. And on that point, again, [ all of ] the information on this slide. But in summary, this shows you, left-hand side, where the market expects rates to be through time from the current rate of around 5.5%. So what the implied policy rate is. So the market, if you go all the way through to the end of 2025, the market is seeing there's probably going to be around 2% worth of rate cuts over that period, and rate cuts are going to be forthcoming this year. You can see that in the right-hand chart, whereby you can see that the market is currently pricing in, as of a few days ago actually, around about 75 basis points, 0.75% worth of rate cuts in the U.S., also some rate cuts in the U.K., and Europe has already started in this process, [ also ] rate cuts and the eurozone. What does that mean? Well, after rates stop rising, it tends to be good for equity markets. This shows you soft landings, i.e., as I said earlier, an economic outcome a slowdown without recession in the U.S., that is the dark blue line there. What happens historically when you get that slowdown without recession after periods that rates peak, what happens when you get a hard landing, i.e., recession, and where we are with the current cycle. That's the red line. So we've kind of followed tight to some extent. The market, the red line there, is broadly returned to what you would have expected actually in a soft landing scenario. But market does expect good earnings growth in 2025. You can see in the U.S. this is probably -- analysts, most analysts, tend to be too optimistic, but the market expects an acceleration, which I don't think is credible, frankly, from 10% or thereabouts this year in U.S. earnings growth to 15% next year. That's probably too optimistic. I think you'll probably see something in the high single digits. At this point, I could be wrong, things [ don't look ] like you're going to get significant acceleration though. But it looks like a pretty robust outcome expected in terms of the earnings picture in 2024 and looking forward to 2025. And again, that's good for markets. But importantly, within the market, the dominance and superiority of the Magnificent 7 is beginning to wane. The blue bar here shows you the earnings growth that has been delivered from that segment of the market against the rest of the market, which is the orange bar, and it's been way ahead. And in fact, the rest of the market has actually been delivering negative earnings growth in aggregate in recent quarters in the U.S. Either way, looking forward, the expectation is that that gap is going to narrow. So Mag 7 is still going to give you a better growth outcome in EPS terms or earnings growth terms, but not as much as it has historically. So some catch-up in the rest. And this gives you a sense about just the importance of that segment of the market, and this is not price return, but earnings contribution. So U.S. technology has done phenomenally well just in terms of earnings delivery. That's one reason, clearly, why that segment of the market has performed so strongly and the U.S. has far exceeded earnings growth outside of the U.S. Again, one reason to my earlier point about why the U.S. has done so well. So I'm going to wrap up there. The last chart you can see here just shows you within the market, different sectors and regions and how you can think about valuation in terms of what you're paying in price to book terms against return on equity. On the right-hand side there, you can see U.S. is above the line of best fit, which is a pretty crude metric given the limited number of observations. But U.S. is a bit rich and tech is a bit rich as well. Our U.S. large cap growth managers are underweight IT in the U.S. So conscious of time. I am, at this point, going to pass back, I think, to the moderator. Very happy to take any questions.

[Operator Instructions] Just to remind you the recording of this presentation with a copy of the slides will be available on the platform very shortly. Christine, over to you. A number of questions from investors, if I can just ask you to read out those questions and I'll pick up from you at the end.

Yes. Perfect. Thanks. So there's been quite a mixture of questions, so I'll start with more of the trust-specific ones. So one that was pre-submitted: You have a very 64 million shares in treasury. What are the future plans for this number of shares. Is it going to be canceled or reissued, et cetera?

Okay. Yes, we've got a lot of questions, so we're trying to get through as many as possible. And if I don't give either an answer or a fulsome enough answer or you want more detail, then clearly, get in touch with us and we can respond directly and give you the detail that you require. But the question relates to treasury shares. So we do own a large chunk of treasury shares. How have we got to this point and why do we own such a large position? Well, firstly, in recent years, I think I'm right in saying since 2015, when we stopped canceling shares, we bought them back and we put them in treasury. The idea was that we would look to reissue those shares when we reached a premium. And as I said, we reissued in 2018, we reissued in 2019, and we were at premium actually about 18 months ago. Now we've got a lot of shares in treasury. The Board do look at the number of shares in Treasury, do look at our policy. So this is a point of discussion with the Board that we discuss with them regularly. Those shares that are held in treasury are not due dividends and there is no cost to holding them. So there's no detrimental impact to holding in treasury. But looking forward, I think it's a perfectly reasonable question why do you hold so many. I think we definitely should hold some, because I hope that we will reach a premium rating again, and it is more cost effective for you as shareholders for us to issue shares from treasury rather than create new shares. So I'd say this is a point that the Board will and are giving attention to. Buying shares is accretive to NAV, and we are clearly maintaining -- looking at the proportion that we have in treasury. And if there's a change in policy, then clearly that will be communicated [ to shareholders ]. Hope that answers the question. If you need more, then, as I said, please reach out.

So we'll skip on to dividends. David is asking: With the rise in net revenue return per share, what's the Board's confidence level in continuing to increase the total dividend for the year, what are the main challenges that might impact the ability to maintain the annual rise in dividends?

Okay. So I don't want to appear in any way complacent, but we've got a very large revenue reserve, as I said, just below GBP 100 million, which out of the number of [indiscernible] was 19.6p per share. So we earned more than we paid out last year. We made more revenue than we paid out in dividends last year. So we put aside some of that income into the revenue reserve as we have done in recent years. So we're really well positioned in the event that we have a downturn in our revenue account from here. And we haven't -- and I don't see any indication of that in the near term. Now what are the risks? I think the risks are numerous. Firstly, a very material move in sterling would be detrimental given the proportion of our earnings which essentially originate from overseas. So all else being equal or starting to go up materially, that would be detrimental to our revenue account. I can see some modest sterling strength from here actually. The macro picture is better. As long as the fiscal position is maintained, then actually, based upon what I was discussing earlier on, it may be that there's some modest rise in sterling, but I think the tail event of a big rise is probably unlikely. So I don't regard that as a proximate risk. Second risk, clearly, if there is a more economic downturn, then that typically would lead to an earnings recession. And then an earnings recession will see a fall in our revenue. That happened in COVID, it happens when the GFC, it happens when you see declines in corporate earnings. So the -- if I'm too sanguine on the economic and earnings outlook, that's going to be bad for -- bad news for our revenue. In either of those circumstances, we've got well over 1 year's worth of income held back in reserve that we could use to top up any shortfall, and therefore I am very confident that we can continue to deliver, sorry, rises in dividends for shareholders, not only in nominal terms but in real terms, over the medium to long term. The Board have committed to deliver another rise in dividends this year. So again, I hope that answers the question.

Super. And since you're alluding to your views on sterling there, there's a question from Andrew about what impact do you foresee from potential policy changes under a labor government in the U.K. and other political shifts in Europe?

Yes, very, very interesting and -- very interesting. So I think the first thing you'd see is -- actually, the bigger impact for our portfolio is probably more on movements in currency than it will be on specific U.K. equity holdings. We also have got a very small portion of our portfolio in listed U.K. equities. So I think within the listed equity component, it's around about 4% or thereabouts. And on the one hand, I think that one needs to think about windfall taxes, whether that's in the financial sector, for example, the bank sector, what it might mean in terms of oil companies and so on. So those potential negatives against an environment that is actually looking more positive, I think, given where we are today relative to where we are previously for the U.K. economy. Either way, I don't think it's going to have a material impact in terms of our portfolio outcome. Europe is -- I mean, this is not a helpful answer, so I apologize -- it's just tremendously uncertain, right? There's gridlock in France, there's a possibility, I think, of more elections perhaps next year, a swing arguably to the right, more by way of populist policies. Again, I don't think that creates an immediate risk. But certainly, if fiscal -- if there's more fiscal profligacy in Europe, and I think we are seeing, I think, France and Italy reaching some of the current fiscal rules, then it might be that sources of revenue relate to higher taxes or windfall taxes or corporate taxes, which probably is in contrast to, outside the immediate question, to what we may see in the U.S., clearly if President Trump 2.0 emerges, where probably lower taxes, but more by way of tariffs, could be good news for domestic U.S., maybe a bit more inflationary, probably a bit of a steeper yield curve in the U.S., but more challenges for emerging markets, the odds in terms of the outcome of Trump 2.0 have diminished quite markedly actually in the last couple of weeks given the [indiscernible] of -- the fact that she will be the Democratic nominee, that Kamala Harris is pretty much neck and neck in terms of what markets you're expecting in terms of the next presidency. At I would say on that point is that the recent change, i.e., Biden's withdrawal, means that our Republican clean sweep is far, far less likely. And therefore, policies may be somewhat watered down from Trump -- by Trump 2.0.

Great. And in the interest of time, I'll try to combine two that are about sector exposures. So one person is asking about how the specific sectors within the portfolio performed, for example, technology and health care, and then some of the people are also asking about how do you plan to balance between high-grade sectors and more cyclically exposed areas of the market?

Yes, it's -- so it's interesting. So in answer to the question, I can maybe look at the specifics and give some numbers that relate to what we experienced in terms of performance of different parts of the portfolio from a sectoral standpoint. What was kind of interesting, I think, is that the AI theme has permeated through not only the technology space -- and from a market standpoint, we're actually a bit underweight technology stocks -- but that is the biggest part of the market. And I think you need to respect that -- and the most richly priced part of the market. But it's also positively impacted other segments of the market, like utilities, for example, and to repeat the point I made earlier on, companies that provide solutions that support the rolling out of AI infrastructure, so cooling solutions, for example, in data centers, energy production and so on. So it's quite a nuanced picture within what is the broad brush landscape of different sectoral components. And then within pharmas, obviously, there has been tremendous performance from the likes of Eli Lilly and Novo Nordisk, and driven in part by high growth expectations, and indeed delivered results, from weight-loss drugs. We've been a beneficiary of that. And I think there's a long runway again there. I mean, we're getting lots of results of studies positive, and obviously, with some of the side effects that these drugs can give. But [indiscernible] the questions or perhaps provide a specific answer with respect to what we've seen in terms of some of the performance patterns, if that works.

Yes. So we'll wrap up there. And there are some very specific questions on positioning that we can hopefully get back to you by publishing the answers after the call. And so I'll just ask, well then, can you add some closing remarks? Are there any things that you want the shareholders just to take away after today's call, in particular?

Yes. Firstly, thank you very much for dialing in. I know there are many, many shareholders on the call. It's always very nice to meet and interact with shareholders face-to-face and virtually and it's great to have the opportunity to speak to many of you today. I know there are many questions that we have not answered. We will endeavor to provide answers to each of those questions. I believe that we have delivered strong underlying growth in terms of asset returns in the first half. Clearly some disappointment in terms of that discount. We are focused on delivering value for you, our shareholders. And I think the longer-term results which I explained earlier on demonstrate that. So thanks again for calling in. And I hope that I'll have the opportunity to speak to many of you again soon.

That's great. Paul, Christine, thank you once again for updating investors. If I could please ask investors not to close the session, as we'll now automatically redirect you for the opportunity to provide your feedback in order that the team can really better understand your views and expectations. This might take a few moments to complete, but I'm sure will be greatly valued by Paul and the team. On behalf of the management team of F&C Investment Trust plc, I'd like to thank you for attending today's presentation and wish you a good rest of your day.