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

Welcome, ladies and gentlemen. Good morning to you all. We're here for the F&C Investment Trust investor presentation. This presentation is being hosted on Research Tree by Capital Access Group. [Operator Instructions] While the company may not respond to every question during the meeting itself, be assured that management will review all questions and where appropriate, published responses. You'll find these responses on the Events page on Research Tree. So without further ado, I'd like to pass the baton to Paul Niven, Fund Manager of F&C Investment Trust. Paul, a very good morning to you.

Good morning, Alex, and thanks, everyone, for joining. I'm going to do 2 things broadly this morning and probably get into some Q&A later on. Firstly, we can give a bit of an overview of F&C Investment Trust. I hope this is a -- trust is familiar to you. If not, then I'll hopefully educate you about some of the history and where we are today. And if you are familiar, then hopefully, this is a refresher about where we invest, the approach that we adopt and the results that we achieved. And then I'll into some comments about where we are from a macro and a market perspective with some thoughts about the outlook. So F&C Investment Trust is the oldest surviving collective investment scheme in the world, oldest investment trust, we've been serving retail shareholders for over 150 years. We launched way back in 1868. So a tremendous history. And in fact, we've paid a dividend every single year since launch over 150 years ago with 53 consecutive years of rising dividends, which does make us an AIC dividend hero. We have, I think, a reputation for consistency. Consistency in terms of performance outcomes, which I'll show you shortly, but also consistency in terms of approach and indeed, the managers on the trust. I manage the trust since mid-2014, just over 10 years. My predecessors, 2 predecessors started back in 1969. So only 3 portfolio managers of the trust since 1969, again demonstrating, I think, consistency in approach as well as manager. We have a long history of investments into equities and indeed private equity. And our focus today is very much on those areas growth assets for reasons that I'm going to explain. We have significant scale in terms of assets under management. We have, as I speak today, around GBP 6.3 billion worth of assets and market cap, which is GBP 5.3 billion to GBP 5.4 billion, and we are a FTSE 100 constituent. In terms of our approach, the overriding objective is to deliver long-term growth in capital and income for shareholders. And the way that we seek to deliver on that objective is by achieving exposure to listed and unlisted growth assets. So that's listed equities and private equity. We are an active -- we have an active approach, which we blamed exposures across a range of underlying active strategies to provide a diversified portfolio looking to add returns for shareholders while reducing risk. So again, the objective is to be a core global growth portfolio, offering a diversified exposure to a range of actively managed strategies listed and unlisted equity space. We have a commitment to net zero. We look to deliver an outcome, which is consistent in terms of performance delivery as well as value for money. And our ongoing charges, a measure of effectively the cost of the trust are 49 basis points, which is relatively low against competing products. The Board made, I think, a very well timed and important strategic decision back in 2013 to move from a U.K. bias at that point prior to 2013, we had around 40% of benchmark exposure in U.K., the rest in non-U.K. assets. So in 2013, the decision was made to go fully global. That was a really excellent decision. U.K. equities, while clearly out favors for some time, have produced strong returns over the past 11 years, as you can see here, we've more than doubled in value and total return terms. Global equities, however, have materially outperformed and investment in global equities over the past 10 or 11 years has risen by fourfold, again, comparing to a doubling in terms of the U.K. equity market. So that strategic decision to go global has been very beneficial. Moving on, in terms of the actual approach and exposure that we have in the portfolio, I said already that we look to offer diversified exposure to listed and private equity. And this slide gives a sense about how we achieve that. Left-hand side here shows you a range of geographic and global exposure in equities. So we have around about 90% -- just under 90% of our exposure in listed equities. So for example, we have exposure to U.S. strategies, of which there are 4. So the U.S. is the single largest geographic area that we invest. So we have 4 underlying strategies. We invest from opportunities within the management company that is Columbia Threadneedle Investments as well as from across the market with separate accounts or segregated mandates. So for example, JPMorgan Asset Management, run a mandate for us in U.S. large-cap growth stocks. That's in excess of GBP 1 billion that we've allocated to that manager. We also have a U.S.-based manager called Barrow Hanley who run a value strategy for us there, around GBP 600 million. And in Europe, Pan-Europe, we use our Columbia Threadneedle colleagues to run those assets for us, again, in separate accounts, not funds, similarly in Japan. And then we also have a range of global strategies, which is denoted by the gray bars there. Now again, to repeat the point, the intention is to blend across geographies, regional, global and styles, so quality value growth in order to provide a diversified set of exposures across listed equities. So we adopt a similar approach in private equity, which is the yellow part of this chart here on the left, whereby we've got just over 10% in unlisted private equity opportunities that is fund investments, primaries and secondaries as well as individual co-investments, which are unlisted -- holdings in unlisted companies, single company exposures, so around 10% of the portfolio in private equity. And again, we source some of that exposure using Columbia Threadneedle investments but we also partner with third-party managers with Pantheon running a program for us there in a bespoke manner. Right-hand side of this slide shows the top 10 listed holdings and there are some familiar names NVIDIA, Microsoft, Apple and so on. We're actually slightly underweight those magnificent 7 at the present time, but nonetheless, some familiar names within that top 10 list of listed stocks. Now one of the advantages that we have as an investment trust post ended vehicle is that we can borrow to invest. And I'm really pleased that we took advantage of record low interest rates to fundamentally restructure our debt in recent years. So we have outstanding around GBP 580 million worth of borrowings. So we've borrowed GBP 580 million. We used that borrowing to invest into equities and into private equity. We've got fixed rates on our borrowings. So on that GBP 580 million, which is broadly equally split in terms of 10 or 0 to 10, 10 to 20 and so on and maturity profile, the blended average interest rate that we pay is around 2.4%. Now we issued debt actually out to 2061. That was an almost 40-year borrow at 1.87%. And the way to think about that is we are borrowing for that period into 2061 with a fixed rate of 1.87%. If we can use those borrowings to invest, make a return above the cost of borrowing 2.4% on average or 1.87% in that specific instance, then that will be accretive to shareholder returns. And that's a very low hurdle rate. So we're very pleased to have locked in very, very attractive borrowing rates an opportune time. I mentioned we've got a very long history in terms of paying dividends and growing dividends, 53 consecutive years of dividend rises. This just gives a little snapshot of recent years and what we've delivered in terms of dividend rises. We're not a high-yield company, for sure. It's about a 1.4% dividend yield or thereabouts, but progressive dividend growth year in, year out and our dividends are covered. We obviously haven't reported for 2024 yet, but 2023 covered dividend and arise once again and the Board have made a commitment to another rise in dividend for the full year of 2024. Performance, I said earlier on that the objective, and what we look to deliver is a value for money, consistent performance delivery outcome for shareholders, and this gives a sense of how we've done there. So there's a snapshot there in the left about how we perform since I took over management in Trust in 2014. And there's also a sense of how we have performed against our peers. The close-ended period typically outperformed the open-ended peer group. So looking at the returns on the right-hand side here, you can see that year-to-date 1 year 3, 5, 10, 20 years in shareholder return terms and in NAV return terms, we have delivered a first or second quartile return against closed-ended funds, which in turn have outperformed the opening equivalents and also make a couple of additional points. One on a year-to-date basis, touch wood, we're not at the end yet, but it looks like it's going to be a very good year for shareholders. Our underlying net assets are up by around about 22% as of today, shareholder returns up around about 20% year-to-date. It's a very good year for 2024. In addition, it's been a fantastic period for shareholders and investors in equities. Indeed, in the last 10 calendar years, we assume that 2024 is a positive year. Which I think it will be, there's only been 2 down years in each of those down years, those 2 down years in the last decade for shareholders have led to a loss of less than 1% in shareholder total return terms. So 8 out of 10 of the last calendar years, including 2024 have been positive and the 2 down years were very, very small losses, last 20 years, actually, it's 16 out of 20 have been positive. And there's only been 1 material year of drawdown, which is obviously in that 2008 period. So it's been a great period for investors in growth assets, great period for investors in the trust specifically. Look through exposure here. So I showed you the strategy exposure and how we think about allocation to different components within equities. This shows the overall look-through exposure. So you remember that we had around about 40% of the portfolio invested in North American strategies. But we also have global components as well, which in of themselves also invest into U.S. and North American exposure. This shows you the geographic exposure into North America, Europe, emerging markets and so on. And you can see that around 63% or thereabouts of our assets are in North America. Listed assets is actually about 68%. So more than 2/3 of our exposure in the listed space is in North American equities. In terms of our listed exposure and decomposing the sectoral composition technology is the largest area that we have with more than 1/4 of listed exposure in tech stocks. So that's the overview of the Trust. I'm going to make some comments. I'm sure there'll be some questions as we go through on the outlook where we are, what the key issues are that we are thinking about and investors perhaps more broadly. So a key question is, are we going to be a soft landing. That's been a big source of debate in the last few quarters for the U.S. and elsewhere was the impact of recent elections, particularly in the U.S. and president-elect Trump is very active in terms of engagement with other world leaders already and already showing, I think, how he's going to use the threat of tariffs for -- on a transactional basis to try and achieve his broader outcomes. There's new key economy recovering. I think there's been a setback, frankly, given the budget outcome. How far will interest rates fall. So again, market pricing on interest rates has really fluctuated, market as it stands today, is currently pricing in another 3 rate cuts in the U.S. at to the end of 2025, which is probably about rights. We do expect rates are going to fall and what it all means for financial markets. So we're going to run through some charts here, which give us a sense about how we see the broader macro perspective, what it might mean for equities and financial assets more broadly. So president-elect Trump clearly, very vocal in terms of his agenda, radical agenda, focus on tax cuts, tariff increases, deregulation as well as control of immigration and other aspects. Now on the tariff point, I think we've seen the headlines. Clearly, he's been talking about a 60% potential tariff on Chinese imports, that would be very, very significant, more significant for China than for the U.S. if we were to see the imposition of 60% tariffs in the -- in terms of Chinese importers that would have a material impact in terms of Chinese growth. We do expect that in that eventuality that we would see a response from Chinese authorities in terms of 1 devaluation or a reduction in the currency and stimulus through fiscal means, which would, to some extent, offset the impact of tariffs. But I think the key point here is, it creates a tremendous amount of uncertainty for countries and areas which are in the crosshairs of potential tariffs. What does it mean for the U.S.? Well, it means in the event that we do get tariffs, which we do expect, just a quantum, I think, is a point of debate is, it will lead to a rise in inflation. Now again, quantification is a function of that, is a function of the pass-through of tariffs and the extent by which tariffs are raised. But at the present time, it looks like several tens of percentage points potentially on U.S. inflation in 2025 after the imposition of tariffs. How will central banks or the U.S. Federal Reserve respond to that? While our view would be that they will look at that as a one-off step change in terms of price levels and then, to some extent, look through it. So our view is that tariffs will push up inflation in the U.S. Obviously, that is dependent upon the quantum of tariffs that are imposed. The central banks are likely to look through that. It creates additional risks to state the obvious for growth in emerging markets and China specifically, growth in Europe. And even the threat of tariffs, the uncertainty will, I think, lead to an impact on business confidence and potentially consumer confidence as well. So it's a net negative for growth outside of the U.S. And in terms of that growth picture, this slide shows how expectations have changed in terms of the growth outcome over the course of 2024. So the U.S. is the winner here, perhaps not surprisingly, expectations were not high coming into 2024, but the U.S. has once again, proven itself robust in terms of growth outcome and certainly continues to lead the way in terms of developed market growth. Emerging markets, again, despite the headlines with respect to China and elsewhere, delivering a superior economic growth outcome, less positive obviously from a market perspective. Looking into 2025. U.S. growth is expected to slow modestly but still to lead the way actually amongst those developed economies. The U.S. continues to be the winner. It is likely that there may well be some downside risk to growth in the Eurozone and potentially the U.K. from the basis of these consensus numbers. So key point, I think, is 2024 saw positive growth surprises from the U.S. It's won the growth rates this year. It will likely win the growth rates again in 2025 against other developed markets. So we continue to grow in our view, at a sustainable rate delivering a better growth outcome than both the Eurozone and the U.K. Just adding a little bit more detail. This shows you purchasing managers in indices when the index is above 50, it signals expansion, and indexes below 50, it signals contraction. So it gives you a sense of the spread of growth in terms of current outcomes across developed and some of the emerging markets. And again, to repeat the point in terms of surprises to consensus when the line here is about 0, it tells you that the economies are surprising expectations positively. The blue light there in the U.S., you can see that recent months have seen positive growth surprises for the U.S. against expectations and that has been a relatively consistent theme in recent years, the U.S. surprising in terms of the robustness of the overall growth outcome. U.K. budgets, one of the key points in terms of the U.K. budget was an increase in borrowing. Borrowing is expected to increase by over GBP 30 billion per annum. That has had implications and you can see that in terms of the market pricing on gilts. There's been a backup in gilt yields. That reflects an expectation of some increase in supply, more boring required from the government in order to fund their spending plans. But unfortunately, for the U.K., the picture in terms of productivity, we can spend, we can invest. But the productivity picture, unfortunately, is very, very challenged. And that clearly is a focus of the new government to try and improve the productivity outcome, which really does remain in the doldrums post the global financial crisis. Interest rates. So again, there's been a lot of fluctuation with respect to market pricing on interest rate cuts. This shows you on the left-hand side, the number of recuts which are priced in to the end of 2025. And it shows you on the right-hand side, the pricing in terms of government bonds. So you've got German government bonds there, the gray line, the orange line there being U.K., the blue line being U.S., and U.S. and U.K. have moved pretty much in lockstep but the U.K., as I said, has slightly underperformed post that budget on the expectation that the government will be borrowing more to fund their investment plans. There's obviously some political uncertainty, not at least in Germany, but also notably France. And spreads between French and German bonds are pushed out to multi year wides. But I think a key point here is that the absolute level of borrowing costs and another thing is that French borrowing costs are now in a par basically with those of Greece, but borrowing costs in the Eurozone remain low. There's not really a sense from market pricing that the problems that we're currently seeing from a political standpoint are going to lead to wider contagion. So I wouldn't dismiss the current political concerns, but it doesn't look like it's going to have wider ramifications in terms of the Eurozone and pricing in terms of government debt, which is a key indicator of investor risk appetite remains relatively well behaved. Just on equities. So you can see here the performance of various developed markets along with China, developed markets in recent years have performed very similarly, actually with the exception of the U.S. The U.S. performance has clearly been world beating. China has clearly been a laggard. The earnings picture, earnings have driven a lot of the performance as well as a widening in valuations, which I'll touch on in a moment. But the perspective in terms of the earnings backdrop for 2025 and analysts are -- these are consensus numbers, analysts are often a little bit too optimistic actually in terms of their expectations. So often, there some downgrades. But the U.S. is expected to grow earnings, the U.S. equity market is expected to grow earnings by just under 15% next year. That's actually expected to be a better outcome in year-on-year growth terms than we saw in 2024. That might be a little bit rich in terms of expectations, but it is looking like a relatively positive backdrop for the U.S. earnings perspective. And similarly, in terms of what I was talking about in terms of the macro growth standpoint, U.S. earnings are expected to outstrip the Eurozone, Japan and the U.K. Emerging markets, expected broadly to deliver our earnings outcome, which is on par with the U.S. I would stress, however, emerging market earnings potentially at risk given the points that I was discussing earlier on with respect to tariffs. So U.S. is leading the way. I think it's fair to say in terms of our earnings expectations. And there is potential -- well, there's potential downside risk, modest downside risk in terms of earnings expectations. In the U.S., I think the risk is actually bigger elsewhere. But as we know, the U.S. equity market is trending relatively rich, one can look at this in different ways, whether it's price to book against return on equity or looking at what we call risk premium, the rating of -- the equity market compared to fixed income. U.S. is trading rich. Nonetheless, I think this is an important chart here. The fundamental backdrop for equities in a rate-cutting cycle tends to be relatively positive. So what do I mean by that? Normally, equity markets and the S&P U.S. equity market will deliver a very good return after the Fed starts cutting interest rates over the next 12 months. And the Fed and other central banks are clearly in easing mode now. Now it's unusual for equity markets to perform as strongly as they have done in this instance up to the point of a fed interest rate cut. So I think it's fair to conclude that maybe some of those future returns have been front-end loaded. But nonetheless, an environment whereby growth is slowing, no recession, rate cuts are forthcoming, inflation is moderating, does tend to be one historically when equity markets deliver reasonably good returns. And I think that is the fundamental backdrop that we are in now looking to 2025. Market leadership has been very, very narrow. Again, you will know this the magnificent 7 shown here, far outstripped the performance from the S&P 500. And just as another comparative, you remember back to that COVID period, we had a tremendous amount of speculation in listed and unlisted markets, to be fair, with unprofitable technology companies in particular, and that light blue line there shows you that despite the fact there's been continued progress in terms of those large mega cap growth stocks, there has not been a similar recovery in more speculative areas of the market where there is less of a proven business case, 0 profits, and you're essentially buying a blue sky proposition. And again, I think the same is true in the unlisted space. On valuations, just one final point on valuations. The U.S. here has shown against developed markets excluding the U.S. and emerging markets. And I think it's undoubtedly true that 1 can observe that U.S. equities are trading at valuations which are rich relative to history and certainly rich relative to other markets. My sense is -- I certainly don't want to appear complacent. But my sense is, given where we are in terms of the cycle, given where we are in terms of politics and potential actions from Trump in 2025, that the U.S. will continue to be a preferred area for investors despite the fact that valuations look relatively rich, when one digs under the surface and look at a stock-specific level, the U.S. is expected to deliver superior earnings growth and actually when one discounts the prospective earnings which many of those mega cap names are expected to provide in coming years, valuations perhaps look somewhat less extended than the headline optics would suggest. So I don't want to appear complacent, but we are relatively heavily weighted to U.S. assets. And for the time being, we will continue. So I think that they offer better growth prospects in coming quarters than other areas, albeit we will continue to remain vigilant as to the backlog. So to conclude, inflation or disinflation, I think, will proceed. There may be a step change in terms of the impact of tariffs in the U.S. specifically. There is clearly a risk of wider ramifications from tariffs and potential trade war, which would be a negative outcome. But from the early signs, it looks as if president-elect Trump is using tariffs as a transactional instrument to achieve his broader aims. We think that interest rates will continue to fall. Market pricing is probably about right with 75 basis points or 1% of rate cuts in the U.S. over the next 12 months or so. U.S. growth will slow modestly, but will remain strong. The labor market, very, very important, is loosening, but doing so in a very orderly manner, which is good in terms of weight inflation and will allow central banks to ease policy further. Europe is a concern, recession risks there are rising, given uncertainty with respect to politics and also tariffs. We don't think that U.K budget does a lot to boost the long-term growth. Unfortunately, it does boost long-term borrowing and raised the cost of borrowing for the U.K. government and U.K. consumers. And in terms of equity markets, this backdrop, I think the way we think about it is what's the fundamental backdrop, what's price then and how are investors behaving. Fundamental backdrop, I think, remains positive. The growth picture is robust, albeit slowing modestly. Interest rates are declining, along with inflation, that presents a healthy backdrop and earnings are expected to grow reasonably strongly in 2025. Valuations are somewhat elevated. It has to be said right now. But in the U.S., you are paying a premium for a superior growth outcome higher-quality earnings, less uncertainty, I think, in terms of overall fundamental outcome compared to other areas, whether it's a discount, such as Europe and indeed the emerging markets. So there is a lot of price in. We do remain constructive on equities looking into 2025. And I'll pause there. I'm very happy to open to questions, and thank you for your time.

Thanks, Paul, and thank you for taking time to give this presentation today. [Operator Instructions] As the team goes through the questions we received so far. I want to point out that a recording of this presentation, together with the slides and published Q&A will be accessible on the event page on Research Tree shortly after the call. Paul, you can see a number of questions in the Q&A tab that have really come in. So I'd like to express my gratitude to everyone for participating in the call and for their active involvement in submitting questions. Paul, the first question, in relation to U.K. and U.S. equities is, do you see the U.K. -- do you see U.K. equities recovering versus U.S. and global markets or are we in structural decline?

It's a really good question and one that gets post an awful lot, and I have had numerous questions in the U.K. over many, many years. And often, people will be pointing out that U.K. is a very, very cheap market and therefore, is likely to outperform, i.e. the U.K., despite what you can see in terms of our allocation, it looks like we're slightly long with the U.K. against that benchmark exposure. In terms of our listed holdings, we're a bit long with the U.K. a couple of percent, but we still hold maybe around 5.5% to 6% of listed equities in the U.K. I think that there is a reasonable value case to be made based upon the discount to the U.S. I think the U.K. is a relatively defensive market, driven by a small number of factors, typically, one, the level of sterling. A decline in sterling is actually good for U.K. equities overall, given the composition of overseas earnings, energy price has not been moving in the right direction, but there's probably a slight better perspective in terms of financials. So I -- in terms of pecking order, the U.K. would not be top of the list for me. I think the U.S. will continue to perform better than U.K. but is probably ahead of Europe. U.K. is probably ahead of Europe now in terms of order of preference given the growth challenges that we see there. I do have some concern, I have to say with respect to the market response post budget, whereby -- I wouldn't go as far as to see stagflation, but there's certainly a width of investors certainly not taking confidence from the growth and inflation outlook. Weakness in sterling, I think partly reflects the fact that investors do not have a positive view in terms of capital flows in the U.K. So I don't think there's a big fundamental change in terms of the outlook for U.K. equities, but at the margin, I think given the value case it looks better than Europe to me at the present time.

Great. Thanks, Paul. And I guess linked to that, you showed an interesting chart on forward PE multiples. And the question is, did the fall in U.S. PE ratios from 2021 to 2023, come from rising E or falling P, i.e., our large U.S. stocks growing into their multiples?

I think -- okay. So I don't have the data in front of me in terms of answering that question specifically, I think typically, it's a combination of both but I think if you look at the -- some of those mega cap names, whether it is Alphabet, Meta, even NVIDIA, when one discount the forward growth profile for many of those stocks, the valuations certainly look less egregious than in the first kind of blush of looking at those companies. So if you look, for example, Microsoft $3 trillion company, Azure is showing growth of 33% per annum. That stock, Microsoft has tripled in 3 years. It's been -- it's on 33x earning mid-teens growth in aggregate. So given their monopolistic position regarding software, how entrenched they are, how hard to dislodge. It's not cheap, but I think one can rationalize where we stand. And if one makes comparisons to the late 1990s and there's been an awful lot of talk with respect to bubbles, the profitability of those leading stocks today is well, well in excess of what we saw in the late 1990s and the multiple is considerably less. So again, there are examples of very high multiples and companies basically over time, growing into their current price. I -- from a portfolio standpoint, we are slightly underweight, the mag 7 but I don't expect a big setback in that area. The growth premium in those very largest cohort of stocks is going to diminish against the rest of the market. So I think there will be some broadening, but I don't expect the broadening will be simply a function of a big decline in mega cap tech, I think we'll continue to see progress from here.

And moving away from the sort of magnificent 7, do you have very much exposure to small and mid-cap across the portfolio?

Yes. Again, this is a very frequent question. The short answer is we don't have a specific small cap exposure. I actually sold in entirety of our separate account and small caps several years ago, which with the benefit of hindsight, was a relatively well timed move. There has in recent months been clear signs of life with respect to small cap performance. Small caps do trades as the mid-caps trade at a discount to the rest of the market. There's a view that falling rates, given the more leveraged nature of small caps that this is going to be an opportune time. And obviously, in terms of the U.S. picture, America first, and tax cut, for example, and protectionist measures may well mean that the small mid-cap space gets a bit of a boost in terms of performance prospects. So I don't have a position on small mid-cap right now. My sense, however, is that mid-cap is probably a better place to be than small cap, the quality in terms of earnings from that segment of the market tends to be higher than the small cap space. We have seen an awful lot of private equity activity, which has taken out some of the more attractive names within that universe. So there's always a question about our valuation discounts justified, i.e. are you paying a cheap price because it's a function of low quality? I think there's an element of truth in that within the small-cap space, but I certainly do see the arguments that the backdrop is somewhat more positive. So we've got large cap and then we've got private equity, which is even further down the scale typically than the small cap, that's our kind of barbell that we are playing right now. We do continue to see opportunities in the private equity space. Small cap -- for mid-cap, small cap and can see a cyclical case for improvement in terms of that fundamental backdrop.

We've got a few questions on private equity coming up. But just before we do, amongst a lot of the rhetoric in the U.S., we've obviously heard that Trump has expressed his desire to vastly increase U.S. oil production. The question here is, what are the investment implications. But in -- compared to what you've just been saying, is that possibly a driver for performance of smaller mid-cap companies?

Well, I think in broader terms, so we're straying a little bit beyond my core area of expertise, I'd say, but in terms of the research that I've seen in terms of U.S. energy production is that I think Trump said previously, drill, baby, drill. You wanted an increase in production. Production has already pushed on very materially in terms of U.S. despite the climate change agenda. So there is a question about practically how much more is going to be done in the short to medium term. I'm sorry, I don't really have a strong view in terms of what the impacts could be in terms of energy production in the U.S. in the short term.

Fair enough. Sticking with sort of thematic. The next question says, in the tech and pharma feature prominently in your portfolio. I'd be interested to hear your views on the major thematic plays over the next decade. Is it AI infrastructure, biotech, energy transition?

Well, there's lots in there. I think the thing that -- one thing that makes me positive, I mean, I think it's quite easy to look forward and to think about all the negatives, and there are negatives. And as I said before, I don't want to appear complacent. There are numerous negatives and numerous things that can go wrong. But what can go right, I think we are in the foothills of another technological change as a function of AI. Now I started my career back in 1996. And Greenspan gave a number of important speeches that year, one of which related to irrational exuberance, not all the headlines. He made another very, very important speech actually, and he talked about the impact of technological change. And several times at century, they are essentially being technological change that can really push productivity. And what he was talking about there was TMT, the Internet and that preceded a bubble in technology stocks, which subsequent burst. But from an economic standpoint, what we saw after several years was a marked improvement in U.S. productivity. It stepped up by a couple of percentage points per annum. So there was a stock market bubble that preceded the actual tangible and visible impact of that technological change, which led to productivity improvement. Now what we are seeing, I think, is the early adoption of AI and equivalent technologies. And it is likely, if we look forward a few years, you will begin to see productivity improvements. And clearly, the current beneficiaries of that or those with proximity to production, whether that's NVIDIA or indeed, we have a company called Vertiv, Vertiv actually was our best -- I think our best performing stock last year, beat NVIDIA in performance terms. I think 252% against 239%, 2023, it's up 165% year-to-date or thereabouts, succeeded NVIDIA in the last 3 years. They provide cooling solutions for data centers. So that's an example of AI. They're not involved directly in production, but they are supporting that technology. I think that, I know there's another question on this, if we see an improvement in productivity, then it is going to have potentially positive implications in terms of corporate profitability. There is a question about what it means for the labor force, right, in terms of labor being displaced and what that means for consumption. But net-net, for owners of capital, and entrenched -- companies with entrenched positions, we are able to use that technology to their advantage, that will provide a great opportunity and may lead and I think this is one reason why U.S. equities continues to trade rich, to sustained high profit margins. Profit margins are very high. Labor share of GDP is pretty low. This technological change may exacerbate that position. And in addition, concentration across any number of sectors is increasing, actually, which basically means there's more oligopolies, there's less competition, and that means outsized gains for capital and corporates against labor. So it's one of the thematics. I think technology remains a massive theme. It remains to be seen, obviously, what happens with respect to health care from a pricing standpoint given some of the appointments or the appointment with Kennedy in the U.S. We also clearly have exposure to Ozempic and Novo Nordisk, weight loss drugs. So there's any number of technological applications, which I think provide very, very exciting opportunities more broadly. But if I was to try and sum up those comments, I think that what we're seeing technologically here with AI, people tend to overestimate the speed of adoption, I think, but tend to underestimate with new technologies, just what the impact longer term is. And I think the impact is going to be really very significant, positive productivity, positive for profits, and there's going to be some big corporate winners as well. Some of the names that you see here clearly have got a fantastic position, very well entrenched in terms of their business moat and are likely to be longer-term winners.

Great. Thanks, Paul. We talked a little bit about private equity, but investor sentiment towards private equity has deteriorated in recent years. To what extent is this overdone? And do you see this as an opportunity? Do you see that your allocation changing in any way as a result?

I think, again, it's a really good question, one that gets raised quite frequently. I think that one has to acknowledge that the backdrop for private equity became significantly more challenging as a function of a couple of things. One, the end of free capital, i.e., rises in interest rates, that created a headwind. Two, I think there was a lot of speculation to this point I made earlier on about unprofitable technology stocks in the listed space. And whether that was Peloton or equivalent, that media, the permeated markets in 2020, 2021, that has dissipated. There's been a lot of capital allocated to similar types of opportunities in the unlisted space as well. And subsequently, those valuations are really deflated. So as we stand today, I think there's been a very significant valuation adjustment in private equity in general terms, declining interest rates presents a more positive backdrop. But what I would say is that we've got a long, long history of investment in private equity. 20 years ago, the spread in terms of excess return from private equity in general over public equity was quite large. That's diminished markedly through time. And in fact, private equity in the last couple of years has clearly lagged returns from listed equities, partly because listed equities have been so, so strong. It's a little bit of a cliche, but I think one has to be very selective in the private equity space. The way that we approach it is predominantly looking at mid-market opportunities. So smaller than the cap scale, where there's less capital chasing deals. Valuations are much more attractive. We buy exposure to businesses, which have got high levels of free cash flow, typically buyout opportunities around the more speculative type of activity, which I think was evident again several years ago. So yes, you're buying fundamental businesses, which are attractively valued and giving you some slightly different exposure you can get from the listed space. And we also supplement that with exposure to leading venture and growth managers. If you want to play in the venture space, you really should only do so because typically, you'll lose money if you can access the preeminent managers because they are the ones who see the best deal flow and unlike the listed markets, there is evidence of persistency of returns. So I think private equity for me remains interesting. It's in a lean couple of years for sure. We haven't -- we've seen broadly flat returns in the last couple of years. So that's really disappointing against listed markets. But on average, not big, big write-downs. If I look slightly outside of my immediate universe or exposure and look at private equity trust, frankly, I look at some of these private trusts, which are trading on very, very meaningful discounts, and I think they offer good value. We don't, as a trust have exposure to those trusts. We have a GBP 6 billion of capital to invest. We are deploying that capital selectively into direct opportunities. But private equity trust trading at 35%, maybe 40% discount to very high-quality book of assets look quite interesting to me.

Thank you, Paul. So we have time for one more question before we conclude. So in summary, why should investors consider investing in F&C for their portfolios?

Okay. Well, maybe at the risk of repeating what I said earlier on. I think there are broadly 3 reasons why investors should consider F&C. Firstly, we're diversified, actively managed across listed equities and private equity. So it's growth assets. We manage across the cycle, blending different exposure to add return while reducing risk. So first point really is we're a one-stop shop for typically retail investors, drawing from a huge range of expertise from within Columbia Threadneedle Investments and from across the market. Second reason, it's not unique to F&C, but as an investment trust, we've got some special advantages, I think. We've got an independent board. They are very much focused on performance cost outcome for shareholders. We've got structural advantages like gearing, very deep gearing, as I said. We can provision for dividends. That means we have been able to become a dividend hero delivering 53 years of consecutive dividend rises, and we're very cheap. So the trust structure, I think, gives us some advantages. And in the outcome, I can't predict the future, I may have a view but our approach has worked generally. We've delivered consistent returns and that outcome, I think, makes us ideal as a core holding for shareholders. So diversification with active management, the trust structure and the proof statement that we have delivered in terms of the outcome for shareholders, not just in 2024 but over a very, very long time period.

Great. Well, many thanks again for your presentation this morning, Paul. To all investors, we kindly request that you keep this session open as we'll be automatically redirecting you to a feedback form. The insights from this form will greatly assist the management team in understanding your perspectives and expectations more clearly. We sincerely appreciate your participation in today's presentation. I'll now bring the session to a close. Thank you all for your time, and a good morning to you all.