F&C Investment Trust Plc

Good morning, ladies and gentlemen, and welcome to the F&C Investment Trust PLC Shareholder Update. Throughout today's recorded update, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time just using the Q&A tab situated on the right-hand corner of your screen. Please simply type in your questions at any time and press send. Given the attendance on today's call, the company may not be in a position to answer every question received. However, the company can review all questions submitted then. We'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure I'll be most grateful for your participation. I'd now like to hand over to Fund Manager Paul Nevin. Paul, good morning.

Okay, good morning, everyone. Thank you very much for your attendance. I believe we've got quite a large number of shareholders on board. the line and I think some potential shareholders as well. What I propose to do is run through an overview of the trust. I'll keep that relatively brief because I think most of you will be familiar with our approach, but I'll give an update on that. Then I'll talk about the market perspective. the broad macro landscape, some of the issues that we're thinking about, some of the decisions that we are making, and then we'll get into Q&A. So there's quite a lot of content to get through. So I'll move through reasonably quickly, but hopefully leave plenty of time at the end to address your questions. So just briefly, I think, as I said, many of you will be very familiar with the Trust. We've got a very long history. very consistent management approach. In recent decades, focused very much on growth assets, that's listed equity and private equity. We are around about now £6 billion in terms of market capitalization. Therefore, we do have substantial scale and we believe that we offer a cost-effective solution for investors looking for exposure to a diversified portfolio of equity and private equity holdings and additional points which I'll draw in a few moments very long track record in terms of Not only paying dividends, which we have done every single year since launch back in 1868, but rising dividends through time ahead of inflation. And that remains an aspiration of the board to continue. We do, as I said, focus on inflation. growth assets that the overriding objective is to grow capital and income the way that we achieve that exposure is by investing in capabilities from within Columbia Threadneedle Investments that's the company that I work for but also drawing from expertise across the markets in terms of third-party exposure in listed areas such as JP Morgan who run our large capital a growth portfolio, Barrow Hanley who run a value strategy for us, and a point that I'll get into as we go through is that we also have moved the management of emerging markets assets to a third party management, we did that about a year ago. And the outcome that we look to achieve is consistency in terms of performance delivery so overarching objective growth in capital and income as I said but we look to deliver consistency in terms of performance and performance outcomes as well as as I said delivering value for money for shareholders. So a few points and I did note we had some some pre-submissions in terms of questions and I'll try and as I said get through as many of them as we possibly can But this gives a sense of the long-term perspective of global equities against UK equities. And as you be or as shareholders will be aware, we made a decision to globalize the portfolio to reduce that UK bias in terms of exposure back at the beginning of 2013 and take a much more global approach in terms of our exposure. And this chart really shows that since that decision was made, it's been a very profitable outcome for shareholders with global outperforming and purely. We did receive some questions about exposure to the UK, which I'll come on to in due course, but also about our relative performance against peers. And our primary peer group is obviously global trusts, those that invest for the global remit, rather than necessarily those that are constrained by investing in the UK. But it is noteworthy, I would say, that there has been an uptick in performance, particularly in the last 12 months, from the UK market relative to the US and global exposure. And that has been reflected actually in better performance from some of those UPA-focused trusts and funds, and particularly those with a value bias, those that are essentially targeting value stocks or a higher income. Just putting some numbers on that, I run through this reasonably quickly, but... In the last year, we've seen the UK value index, as measured by the MSCI, up by about 30%. In the last three years, 54%. Now, you compare that to our returns, and we have delivered 9.3%. So, longer time periods, certainly when one looks at 10 years, you can see that global markets are delivering around twice the return achieved from the FTSE 100 index. But if one looks at a shorter lens, it is clear that UK equities specifically have been performing better, as have other regions. And UK value stocks in particular have been performing better. So there's been a bit of a catch up in the short term from those areas. Again, I'll come back to that in terms of the Q&A, because I think there are some more questions on that point specifically. Just to remind you, we run a diversified portfolio, gaining exposure through both regional and global components to listed and private equity markets. And this shows the split of exposure as at the end of the year. into underlying strategies. I'll give a bit more granularity on this as we go through. Also with our top 10 listed holdings, you can see many familiar names in the top 10 US stocks dominating and many of the leading technology and related disruptors in those top 10 holdings with Nvidia being the largest single holding at the end of the year. Again, so if you want to compare this against the Merck indices in terms of exposure, well moderately long of NVIDIA against the Merck indices, but typically actually slightly underweight, most of the other Microsoft 7, notably Apple. We've got low cost fixed rate debt, a point that I've made repeatedly. That's a tremendous advantage in terms of the structure that we have. Our blended average interest rate is about 2.4%. We've got £580 million nominal debt outstanding, and that is well diversified across a range of different tenors, as is shown here. So that's fixed rate debt. So we've been immunised from the rise in market interest rates that has occurred in recent years, and even though credit spreads remain tight, the borrowing rates that we have are very, very attractive against that which would be available in the market today. In a sense, the way to think about this is we've taken that money that we borrowed, we've invested it into financial assets listed and unlisted, and if we can generate a return which is in excess of the cost of that debt, then that will be accretive to NAV returns, and that is a low hurdle, 2.4%, as I said. Repeating the point on dividends, long-term track records, we have a covered dividend or certainly we've not reported our 2025 results yet, but 2024 we had a covered dividend. We're in a very good position in terms of revenue reserves and it remains the aspiration of the board to continue to the review rises in dividends for shields in the longer term. And performance outcomes, as I said, working to deliver strong and consistent performance outcomes. This shows that chart replicated from earlier on, but also adds in the performance of F&C over the long run. And you can see that we have our shareholder returns have exceeded the returns available from UK and global indices. So, some significant strategic decisions clearly moving, as I said, from a UK biased portfolio towards global. That was very advantageous more than a decade ago. But performance has, in the long run, been strong for shareholders and also strong against the peer group. So, this reflects the picture at the end of Last year, we have not released the full year NAV. So this is essentially taken from publicly available data at this point. But the shareholder return was 14.6% last year. So strong and absolute terms, that compares to 14.2% from our benchmark index. That put us in the second quartile in shareholder return terms last year against that closed-ended peer group of global trusts. In the longer term, in shareholder return terms, we were typically first quarter and over five years, we're actually delivering the strongest NAV return amongst our peers as at the end of 2025. So, consistency, strong absolute returns and good returns against the the peer group of global trust that we primarily measure ourselves against. And value for money. So again, repetition, 45 basis points is the OCF that is applied to the trust, which we think represents value for money. I wouldn't dwell on this slide other than to point out that this shows the exposure that we have in terms of underlying strategies. I, as you know, am not the stock picker on the trust, but essentially manage the overall exposure. across and within regions, equities and private equity, allocating to different stylistic exposures. So growth exposure, value exposure, and growth in the longer run has done very well clearly in the US, but value has actually been outperforming in non-US markets. And notably, again, to the point in the UK, notably outperforming in the UK and elsewhere. Square diversified exposure between growth value, also taking into account of momentum and behavioral factors. Essentially, our view is that if one buys cheap stocks, which have good growth prospects and strong momentum, then typically that's a good starting point in the pursuit of high performance against market. The significant change that we made last year in terms of the lineup really relates to emerging markets and those that listened to webinars towards the end of the last year may have heard me talk about this already, but we essentially made the decision to allocate our emerging market exposure to Invesco. They operate a value-based approach, but take account of quality of businesses. That means essentially low leverage, high barriers to entry, typically in terms of the franchises that we invest in. And it's very pleasing that they've got a good start in terms of absolute and relative returns for us on that component of the portfolio. Look through exposure here. So the majority, more than 50% of our assets are invested in North America. Other regions are represented in Europe, emerging markets, Japan, and so on. And this also shows the listed sector exposure in the portfolio with technology being a significant component of our underlying equity holdings. So, let me move on, give some comments on the market perspective. We'll just give a lens on 2025. There's a lot of information on this chart. The numbers might be a little bit difficult to read, so apologies for that. But you can see in the left-hand side of this chart there that silver and gold are prominent in terms of leading the way in market returns in 2025. And obviously, that picture has continued in 2026 thus far with really quite extraordinary results. progress in terms of precious metals. But there's a few points I would draw from this chart beyond the focus on gold and silver. Firstly, it was an everything rally last year. You can see that credit markets, government bond markets, equity markets, commodity markets, if one looks at it in terms of precious metals, all performed well in absolute return terms. So, most assets made positive returns. And you may be able to see that the S&P 500 is closer to the right hand side of this chart than the left, which says the S&P was actually one of the less highly performing areas last year. So in local currency terms, that's dollar terms, it returns close to 18%, which is a really strong outcome, clearly. But it did underperform areas like the Eurostock 600, also European index, the topics in Japan, FTSE 100, which are closer to the left of this chart. So for the first time in a couple of decades, we had essentially concerted outperformance from developed and emerging markets against the US. So that was quite a change, actually. We also, in global terms, saw very similar performance outcomes. This is towards the middle of the chart. Very similar outcomes in terms of growth and value. Now, growth rate performed slightly in the US by two to three percentage points, but at the global level, it was pretty much level peggings, just under 22% from both of those indices. So the big gap that we have seen in recent years between those two areas narrows materially, actually, last year. And that was true in the U.S. as well as globally. And globally, it tended to be value that was outperforming rather than, sorry, global ex-U.S. tended to be value that was outperforming rather than growth. So some quite significant changes going on last year. An additional point, not obvious from this chart, is that one asset or area that underperformed last year was obviously the US dollar. And again, that picture has carried on thus far into 2026. And those that keep an eye on the short-term news flow will know that President Trump has... almost given his blessing, although one never knows how permanent these statements are, to dollar weakness in the short term. He didn't seem overly concerned with questions relating to dollar weakness. And that has prompted a slide in the dollar overnight against Sterling and other currencies. And it was trading through 1.38 when I looked this morning against Sterling. So dollar weakness obviously eroded returns for investors in dollar-based currencies. sorry, sterling investors in dollar-based assets last year. And that's one reason that the U.S. market was a laggard for us last year. And just bringing some numbers on that, we started at 2025 with around 125 in terms of cable that's sterling into dollar. We ended around 135. And as I said, we're now about 138. So dollar weakness has been eroding returns from the U.S. market. Moving on. Quite a lot of information in this slide. Key themes. What are we thinking about? Firstly, fundamentals I think remain pretty good actually in terms of the global economy. There are numerous risks that we'll come into. There are numerous points of concern. You know, we've been having this conversation ten days ago than we would have been, or even a week ago, we would have been thinking about Greenland as a clear and present risk with respect to US intentions there. That's not to say gone away, but certainly the temperature with respect to negative outcomes there has diminished materially. But notwithstanding those risks and geopolitics which I'll come on to, Global growth remains pretty resilient. We think the cycle extends. Growth is critical in terms of investment in growth assets like equities, and we think the environment remains reasonably constructive. Second, again, I think that we may have some questions on this. We're waiting for the Supreme Court to pine in terms of the legality of Trump's tariffs. And even if they are deemed illegal, I think that the administration, the U.S. administration, will find another way. They do have other powers, other levers that they can apply. So in addition to Section 122, Section 301, the administration could use Section 338 of the Tariff Act of 1930 to impose tariffs of up to 50 percent for discriminatory foreign practices. So I don't think the Supreme Court's ruling, whatever that is, and the expectation is that they will not rule the tariffs illegal, but even if they do, I don't think that the tariffs will disappear. The administration will find another way to impose tariffs. Third point, we're We're seeing an environment where inflation is slightly above target. Rates have been higher, clearly, than they were in recent years, but they are diminishing. We're going to see further rate cuts this year. We think it'll come to that point, with the notable exception of Japan and Europe, where we think that things are on hold. So the U.S. and U.K. probably are going to see further rate cuts. Bond markets may not be a point of attention for everyone on the call, but capital flows cross-asset globally. And bond markets are really important in terms of pricing and dynamics impacting risk appetite across the board. And what we're seeing in credit markets is incredibly tight spreads. That tells you that investors are pretty sanguine with respect to corporate risk. But in terms of government bond markets, there is some unease with respect to the size of government debt, fiscal deficits. And we've had some wobbles, some sharp moves, actually, in terms of the Japanese government bond market in recent days. And also in Gilts, actually, closer to home. I won't dwell too much on local politics, but the prospect of Andy Burnham's leadership challenge did seem to unsettle, albeit for a short period. Gilts markets some concern about further growth. issuance there and perhaps more fiscal largesse in the UK. So I think government bond markets remain a risk to equities and government debt remains a risk to equities overall, but not one that we see causing significant eruptions in the short term, albeit we might see some further action in terms of intervention from the Bank of Japan on the yen, which also might lead to a little bit of volatility in the near term. AI remains a big theme. Clearly, there's more differentiation between winners and losers across and within the market. There's numerous examples of that. And the market is really testing this on a day by day basis. In the last few weeks, we've had insurers in the UK and elsewhere hit by this digital insurance company, Lemonade, launching products specifically for self-driving cars and talking about a 50% drop in insurance rates as a function of autonomous driving. So that may be impacting on conventional or traditional insurance models, certainly in terms of the auto sector. And again, reasons for that, the application of AI Way more those that have been in San Francisco, Los Angeles or some of the other big US cities. And now in London, actually, although not fully live, you know, way more self-driving taxis are on the way here as they are in the US. And, you know, the statistics suggest that that technology is 80 to 93% or thereabouts more reliable. in terms of driving less accidents than humans. So that will have an impact on premiums. So my point is that the market is moving in terms of discrimination between AI winners and losers and moving quickly, incorporating new information. And that's going to again be an ongoing theme, I think, as we move through this year. I'll talk about that in a bit more detail through the AI. Geopolitics, so tremendous uncertainty. Who knows what comes next? Question, does it impact markets? Of course it does, but is it going to be a permanent impact on markets? Probably not, as I'll show in a moment. So fundamentally, we think that the picture is reasonably constructive for equities. Fundamental backdrop is good. You've got to think about what can go right as well as what can go wrong. Lots of things can go wrong. But lots of things in terms of growth backdrop, earnings, margins, rate cuts, they can all go right for equities actually, despite some concerns that we have on valuations. So, just a few points. Again, I think there's a few questions about potential setbacks, volatility and so on. there's lots of concern about the outlook. I would not in any way seek to diminish that concern and it is entirely possible, probable that we do have a correction as we go through this year. This chart just shows for the US market entry year declines, that's the red bars against calendar year returns. So declines that happen very, very frequently Actually, last year we had about a 19% drawdown in terms of the market in the U.S., obviously around Liberation Day before we ended up 17%. So it's normal to get quite substantial, often double-digit drawdowns on the market on an intra-year basis. But we have to go back to the late 2000s. 2000s, you know, really to see that very material downturn in consecutive years, three consecutive down years, big annual drawdowns, 2008 into 2009, again, very, very big drawdowns, but ultimately 2009 ended up being an up year. So, again, I don't mean to diminish or seek to diminish the risk of downturn or correction. In fact, this chart shows you that corrections and setbacks in equity markets are normal, happen frequently, but timing the markets can be a challenge. And that is, you know, we do employ active management. We do employ gearing on the portfolio. We do look to take advantage of tactical opportunities, but we are also long-term investors. And many of you will have seen similar charts as this before. And this shows the impact or value of $10,000 invested in the S&P since 1995. And if you'd remained fully invested through that period, what you would have enjoyed in terms of returns, which I think is about 225 thousand dollars and then what the returns would have been if you'd missed some of the best days in terms of returns so timing is difficult and in addition on the geopolitical side of things again there's a lot of noise obviously from the US administration I would not dispute Mark Carney's assertion that you know we're seeing a rupture in terms of the norms in terms of global relations. We're seeing fragmentation in terms of global alliances. Again, I wouldn't seek to downplay or dispel those concerns, but on the other hand, geopolitical events generally tend not to have a lasting impact on markets. There are exceptions and the Gulf War. back in the early 90s is one example of that. Oil prices were impacted and ultimately growth was hit. So there are examples, but more often than not, and with Trump, again, we can't dispel the pronouncements, but As we have seen in the case of Greenland, I think another example of perhaps exaggeration in terms of intent and then an element of climb down ultimately in terms of eventual policy. And we saw a similar picture there in terms of tariffs. And he's been threatening Canada with tariffs and South Korea with tariffs over the last couple of days. Markets seem to be becoming somewhat more immune in terms of the impact of those comment statements in terms of the market outturn. So again, I wouldn't dismiss or dispel those concerns, but the lesson from history is that trade politics tend not to have a lasting influence. But again, I do think it is right to conclude that we are in a different world order than where we have been, and that will are the increased volatility in terms of equity market performance. This just gives a long-term lens in terms of equity market returns incorporating some significant events. So in a bit more detail, I'm running it through quite quickly, some of the points I've made. The outlook is pretty good, I think, in terms of the growth profile. This gives you, on the left-hand side, for the economists on the call, the GDP forecast from consensus across the major regions. It's a pretty similar outcome that is expected in 26 to 25. And on the right-hand chart, you can see that actually in the U.S., The growth outcome in GDP terms ended up better than was expected this time last year, despite big downgrades to expectations in and around Liberation Day. Conversely, we have seen inflation being slightly higher than had been expected. So it's been a good growth out turn in the US, broadly in line, if we look at the beginning of 2025 expectations, best in them was expected in 2024. And that picture is actually expected to continue. I'll come on to the earnings picture in a few moments. And then it's worthwhile noting that good growth outcome in the US and elsewhere was delivered despite all the threats and imposition of tariffs, inflation a bit higher. Earnings, obviously critical in terms of equities. Lots of information on these two charts, I'm going to focus on the one on the right. is regional growth forecasts. Obviously, we're in reporting season in the US, so we're going to get a sense from the next few days of what actually 2025 growth rates and earnings terms ended up being. Some big reports coming tonight, clearly from some of those leading tech companies. But the picture on the right-hand side of this chart shows the solid bar there. what the expectations are for 2025 earnings per share. So the US delivering EPS of around about 14% last year. That is not far off what was expected at the beginning of last year and is pretty similar to what is expected for this year. So, you know, I'd make the point that the US broadly delivered on not only GDP expectations last year, but earnings expectations last year. That contrasts with Europe. So Europe, unfortunately, looks like it delivered a modest decline in earnings last year, far worse than was expected by analysts at the beginning of 25, which is the gray dot. But there is hope and expectation for a substantial improvement in 2026, as shown by the orange dot there. So Europe was disappointing. Japan was also disappointing, positive. The UK was disappointing, pretty modest earnings growth. emerging markets was pretty close to expectations and good growth expected in 2026 and so on. So the picture is the US actually delivered in earnings terms last year, most other regions ex-emerging markets really disappointed. And if one interprets the earlier chart that I showed in terms of market performance, one can conclude that the performance of Japan the performance of Europe, the performance of UK, and our performance against the US was primarily driven by an upgrade in ratings or the market simply became more expensive. In contrast to the US, where valuations expanded a little bit, probably over the year, but it was primarily driven by earnings growth. Now, looking into 2026, Our view is that Europe is far more likely to deliver on the earnings expectations this year than last, maybe not as high as consensus expectations, but maybe double digit or close to double digit earnings growth this year. So the fundamental picture for most markets actually looks pretty good in terms of the earnings expectations when we look into 2026. And that's really important because I would say Europe, Japan, UK, to varying degrees, enjoyed an uplift in multiples last year in expectation of better earnings outcome. So they need to deliver on earnings while the US has continued really to do so. Now, just a few comments in terms of rates. So rates, as I said, are expected to come down, probably two cuts from the US Federal Reserve. There won't be a rate cut today, we don't think, but a couple of rate cuts to come in the US, one, maybe two in the UK. Core inflation remaining above target, hopefully moderating a little bit as we progress through the year. What does that mean for equities? Well, if we get weak cuts, typically that is good news for equities, particularly if recession is avoided. So this takes U.S., rate-cutting cycles since 1970, and it shows you the average outcome in terms of from the first rate cut of the cycle, what equity markets do on average, that's the orange line, and then what happens to equity markets when there's rate cuts but a recession. And normally rates are being cut when growth is slowing, right, and often into a recessionary environment. Clearly, equity markets perform better when rates are going down, but there is no recession. That's the blue line there. And the dotted blue line shows where we are in this cycle. So we're performing pretty much the type. And actually, the 12-month period after... the first year of rate cuts, which we're in now, you know, given the first rate cut happened in September 24, typically is slightly better than that first 12-month period, actually. So, you know, if one didn't know anything else and didn't look at valuations or the macro backdrop beyond rate cuts, and you concluded that we were going to get rate cuts but no recession, the lesson of history is this tends to be quite a good period for equity returns. That is what we've seen thus far. Now, just a few comments on AI CapEx. So... Again, quite a lot of information on this chart, just showing the explosion in terms of trading computers-related products. And then what's happening in terms of the Magnificent Seven, profits, cash flow, CapEx on the right-hand side there. CapEx, right-hand side chart, the blue line, free cash flow, the gray line, net profits, the orange line, and related dots showing consensus expectations on a forward-looking basis. Now, there's a few points I would draw out here. One, profits from the Magnificent Seven are expected to grow strongly in the years ahead. We actually, our analysts, are pretty bullish on NVIDIA in particular, think that they will continue to meet or exceed expectations, and therefore what looked optically like quite high valuations on a go-forward basis will diminish as the company essentially grows into those earnings. But there's no doubt that CapEx is picking up, picking up very markedly. QQ run rate in terms of CapEx is $400 billion today. annualized, you know, we're likely to get $450 billion for the Mag7 in terms of CapEx this year or thereabouts. That's having quite a big impact in terms of GDP numbers, overall growth rates in the US economy, impacting other sectors, clearly, telcos, miners, energy, all benefiting from this explosion in CapEx, driving the AI build-out, data center rollout, and so on. But for the Mag7, Up until recently, the capex has been funded from free cash flow, as you can see. But the gap between the grey and the blue lines and dots is diminishing. And clearly, there's less headroom in terms of free cash flow in terms of funding capex. And that varies across the magnificent countries. Seven clearly. So these companies are moving from capital light businesses towards more, to a greater or lesser extent, towards more capital intensive businesses. And again, that is a point of concern and note for the market. And interesting also what's happening in terms of headcount in those businesses. You know, I think this is quite interesting in terms of not just the max seven kind of parochially, but the application of technology and replacement of labour with capital. The Magnificent Seven workforce typically was growing in line with their profits and free cash flow. That actually, that relationship broke down a few years ago and they stopped adding headcount on a net basis. And that's true again to varying degrees across That cohort shown on the right-hand side with Nvidia continuing to hire, but most other companies basically flatlining in terms of their employees. So this is about, in my view, substituting labor for capital, again, moving from capital-like businesses to more capital-intensive, and that's a big shift. That is a big shift in terms of the composition for these companies. Evaluations, I don't think the picture has changed that much since we last presented, but to repeat the earlier point, there's been quite a big uplift in terms of multiples on Japan, on Europe, even in the UK and emerging markets. Still big discounts against the U.S., but the U.S. is broadly tracked sideways, depending upon what time period you're looking at here. U.S. is trading rich against history. Other markets are trading cheap, but certainly not as cheap as they were, and that discount is narrowed against the U.S. for other developed markets and EM. On a forward basis, also show you the price earnings for the MAG7 against the S&P, so they continue to trade at premium. But that premium is actually not that high compared to history. Now, to be fair, the premium growth rate that is expected in terms of earnings from MAG7 is going to diminish in the year and years ahead. but it is going to be a premium nonetheless. But the actual premium rating for the Mag7 against the wider S&P has diminished. You can see that in the bottom right chart there on the slide. Just one more, two words on data sustainability. Data was very high, clearly. Japan is under a little bit of pressure with respect to the potential policy, which the equity market likes in terms of further stimulus, obviously focused on shareholder reforms and so on, but potentially more by way of fiscal expenditure. And this will periodically, I think, cause some angst in bond markets. We've seen, as I said, some mobiles in Japan. gilts in the last week or so, and also in the Japanese government bond market. Their level is very high. As long as interest rates remain low, and there are many mechanisms that central banks and governments can use to control interest rates, market interest rates, we don't think that these levels are necessarily unsustainable, but I suspect it will remain in focus. So, conclusions, and we'll move on to questions in a moment. Conclusions, like Great cuts to come from the US Federal Reserve, not today, but as we progress through the year, probably a couple in 2026, based upon current expectations. Earnings growth going to be pretty good, actually, in the US. We're going to see premium growth rates in terms of earnings from the Magnuson 7, which are trading also at a premium to the rest of the market, but lower than has been the case historically. Few politics create volatility. Noise, obviously, a concern for us as investors, you as shareholders. But we're looking through that generally into fundamentals and fundamentals remain strong. Credit markets are not signalling substantial concern in terms of defaults. We think that AI, to state perhaps the obvious, is going to remain a key theme in markets. We do think that the market is clearly becoming more discriminating in terms of winners and losers. That's not just within the technology sector, but elsewhere as well. And emerging markets, we think the environment for EM looks reasonably good, actually. There has been a quite big uplift in terms of valuations. They continue to treat it quite a big discount and developed. But weak dollar, cuts in interest rates, better fundamentals from EM, good self-help stories from a large number of countries in that space, all helping, we think, to drive returns. which we really saw in 2025 when one looks to that earlier chart in terms of performance in Europe, performance in Japan, performance in emerging markets, and performance in the US, which had a good year, a really good year actually, notwithstanding dollar weakness. We think that that trend persists. I wouldn't predict certainly the kind of returns this year that we had last. But nonetheless, we do think that the environment remains reasonably constructed, providing the growth backdrop, the positive growth backdrop remains intact, which we think it will. And some of those left field geopolitical events, which do cause us concern, as I said, do not materialise. So I'm going to pause, I think, and we'll pass back to you, Peter, and we can open for questions.

Thank you very much, Paul. Yes, my name is Peter Brown. I'm part of the Investment Trust team here at Tremor Threadneedle. Thank you for listening in and thank you for your questions submitted. Please continue to add to them. We'll get to answer them either now or post the webinar. And Paul, you've been very detailed in your presentation and you've answered most of the questions indirectly, but I would like to just throw a few at you and I'll, in the interest of time, try and merge a few together. A lot of it is about corrections, a lot about US technology and valuations. So I'm going to, if you don't mind, sort of put four to you all with a similar theme. So it's basically, is the trust overexposed to you as technology companies where the share price is not supported by asset valuations or realistic future earnings? Mixed with, is there some speculation or there is some speculation amongst investor community that stock markets may be in for a correction sometime in the coming year? What is FNC's view on this? With, what is your view on suggestions that a correction is due to high-tech stock valuations or the prominence of these in the portfolio? And finally, in the same theme, Cisco have predicted carnage in the US tech sector. Consumer confidence is weakening. but their valuations are extremely stretched. Is it not time to reduce exposure to the US?

Okay, yeah, there's a lot of very good, very relevant, very timely questions around this theme of excess valuation in the US market and US technology stocks in particular. I did see the comments from Cisco overnight, and those with low memories will recall, I think, that Cisco Sorry, 80% or thereabouts. Maybe more, actually. And, you know, the aftermath of the dot-com bust, you know, took a long... I think also it's... had very, very high expectations in terms of earnings, ultimately delivered, but the valuation on that stock was at such a level that it took a long time, that even though expectations were ultimately met, it took a long time to quote-unquote grow into that multiple sort of big, big fall. I think, let me try and answer that. Are we in a bubble? There's certainly an awful lot of talk with respect to risks of a bubble in the US market and technology stocks and AI. For me, a bubble results in falls similar to that which we saw in the early 2000s, where we did see an 80% decline in terms of the NASDAQ. If you look at Japan, we saw an 80% decline in Japanese equities when that bubble burst. So I think there's a clear difference between defining a bubble and expecting a bubble to burst and the implications of that. as opposed to a correction. As I showed, corrections are not uncommon. Would I be surprised if there's a correction this year? No, I wouldn't. Do I think that we are in a generalized bubble in terms of equity markets? No, I don't. I think that the valuations that we saw in the late 1990s, in other instances of episodes that turned out subsequently to be a bubble, violations were far more extended than where we stand today. I think that there was a suspension of disbelief with respect to assumptions that were required to justify those multiples in terms of U.S. technology stocks in the late 90s, early 2000s. but I would not dispute the observation that valuations are relatively rich in the US and in particular. So I wanna couch it in terms of, firstly, the valuation perspective is rich, but I don't think um nosebleed territory that you know markets can collapse under its own weight for for reasons of valuations alone you know i think that though again those with long memories and you know i started my career in 96 and we have said this before greenspan gave a very famous speech in 96 about irrational exuberance the stock market responded negatively to that in the short term and subsequently went on to reach new highs i think doubling the nasdaq in the year prior to the peak in March 2000. So, there was a long runway when we went from rich to very excessive, a number of years actually. The Fed was raising interest rates in that environment as well in 1999 prior to the tech bust. There was also quite a widening in credit spreads in advance of that tech bust. And there was a big, big gap in terms of stock market performance and overall profits, profitability. So essentially, stock prices continued to go up very, very strongly, while profits were actually going down. And there's a big gap in national accounts data as well. So I think there are quite a number of differences. But I wouldn't, you know, dispel concerns of valuation and certainly Cisco and other companies. companies that have got a long history of operating in this space clearly have got valuable contributions to make in terms of their perspective. I think undoubtedly there are pockets of excess. There are pockets of speculation. We have seen an upturn in terms of performance of unprofitable technology stocks. There are indices you can look at that, and that tells you that speculation is increasing, but I don't think that we're at a point really whereby valuation is going to be a constraint to performance on the US market and technology stocks. I think we can get there. And particularly with rates coming down further and what looks like a pretty benign backdrop, again, notwithstanding President Trump. So one could argue that we have the preconditions for a bubble in terms of the application of new technology, which I think will lead to profound changes. and widespread changes. The market is obviously trying to discriminate more between winners and losers. I think you will see more of that. We're tending to pivot more towards where the capital is flowing in terms of beneficiaries from that capex spending rather than necessarily those that are spending per se. But I think the short answer is we're still relatively constructive on the market. um uh notwithstanding some of the risks that i and others have outlined and is now the time to pivot away from the us um we again we'll be disclosing around the results um in in a month or so's time um but we were net sellers of us equities last year we're relatively high waiting in the us um i think as i said there's a good case to be made for the market broadening from here um But I think that's as much about other areas performing better than the US necessarily diving. And if the US really does fall out of bed in performance terms, that is an environment where other markets will certainly not be immune, and the US actually does tend, again, notwithstanding dollar performance tends to be a bit of a safe haven, and also dollar tends to catch a bit in those . So, sorry, that's perhaps a bit long-winded. I think there's quite a lot to unpack in terms of the questions. I don't want to in any way appear complacent But just to maybe add a couple of additional points, the way that I think about the world in simple terms is we've got a fundamental perspective. I think that's pretty good in terms of the growth, inflation, rate backdrop, the valuation component. Valuations are reasonably rich in equities, but not at levels I think that prevent further progress. And then you've got a behavioral sentiment component. I think there are some pockets of excess, but I don't think that excess is widespread in equity markets at the present time. So I think the fundamental component will continue to be the most important driver for equity returns in the near term. Peter, did I catch your perspective, what the questions were asking?

Yes, exactly. Yes, you did. So moving out of the US then for a change of tack, UK. Question here is that longstanding shareholder, Slightly disappointed with the performance versus other investment trusts such as the City of London Investment Trust, Artemis, which I should say are UK income funds specifically. Would Paul be prepared to make some direct performance comparisons with competitors over five, three and one year? And I'll add another to that question, which is... about tariffs, and you've mentioned tariffs, we won't go into that, but basically, is there a case for increasing the weighting of UK equities in the portfolio should tariff risks reduce between the US and the UK?

Okay, yeah, so on this first point about performance, Look, I recognise that the US shareholders, potential shareholders, can invest into trusts, can invest into open-ended funds, can buy active funds, passive funds, and have a huge choice of opportunities to consider. The way that we think and the board think about performance is obviously long-term growth in capital and income. I think we've got a good job there between the performance Outcomes, performance against our benchmarks. And again, in the longer term, I think we've done a reasonably good job there in terms of keeping up with a market that's been incredibly concentrated in an environment where, frankly, active managers have struggled. And then against peer group. And, you know, different people on the call will have a different perspective about, you know, what our peer group is and, you know, who we should compare ourselves against. Our primary peer group that we and the boards discuss is the global sector. And there are now, I think, 10 or 11 trusts in there. And there'll be, you know, obviously Scottish Mortgage, Monks and Alliance, and others in there. But it's a relatively small cohort now, 10 or 11, as I said. I showed the slide earlier on. We've delivered excess returns against the medium of that cohort over one, three, five, 10 years in NAV terms and shareholder return terms. We've done well against our peers. And as I said, I think in shareholder return terms, we're top quartile over 3, 5, 10. Now, I accept, as I said, that one can look more widely. If you look at UK trusts, and I did look at this in light of the question which was submitted yesterday, UK trusts on average have done far better. in recent years, in the last five years, I think, and last year, than the global sector on average. And those with an income or value bias have done better still. And that goes to the earlier point where I was trying to address part of this question about the performance of UK value holdings over the last one year. three and five years. So values tend to outperform in the UK. So if you've chosen a value stock, a value approach in the UK, you've done better than the wide market. So well done from that perspective. And if you chose a UK value oriented trust in the last year, you've done better than global. I think that is true in the last five years as well. The last three years, it's pretty much the same. And in the long one, as I showed, we've actually done considerably better. So I think there's a question about horizon, a question of perspective about who our peers are. But undoubtedly, some of these competing trusts in the UK space have had a good period. And I've had a good period by focusing on value. So I don't regard... Our performance is disappointing. I think we've done very well in absolute terms. We've done very well against our immediate peer group. If you want to compare us against UK Value Trust, then clearly there are time periods, not the 10-year period, but time periods where they have done better. And clearly, as I said, the market's grown and performance in the UK has been far better in the last 12 months. On the UK, so... Are we looking to allocate directly to the UK? The UK is a small part of the portfolio. It's a small part of global markets and there's a lot of debate about that. That's just the way it is in terms of the overall reluctance of companies in recent years to list in the UK. Discount typically given to UK companies as opposed to their US peers on a like-for-like basis. Is there scope for catch-up? I'd rather allocate capital to other areas like emerging markets in the UK would be my answer to the direct question. We actually allocate on a pan-European basis. So just unfortunately, given that the UK is now such a small part of global markets, we allocate to UK, Europe combined. Is there scope for an upgrade in allocation there? Probably in a medium term perspective, yes, there is. Is there scope for a downgrade in the US? Probably, yes, there is, and I think there was related questions on that earlier. So I think the pivot probably, and we've started to move a little bit this way already, is a little bit more balanced in the portfolio. But nonetheless, I still see the US being the majority of our assets for the time being, given the growth opportunities there, given the dominant position of many of those leading companies, and again, notwithstanding this point on valuations.

Lovely. Moving on again, something different, private equity. Please can you add some colour on the private equity portfolio, specifically what is the split between the buyout, venture, et cetera, and the size of the businesses, mid-market, large, et cetera? And I'll end that with another one regarding in today's environment, are you finding that genuine attractive private opportunities are scarce once return hurdles and liquidity risk are properly accounted for? And if so, where do you see the clearest evidence of outright mispricing across markets?

Okay, there's a lot to unpack in that. And just given time, I'm going to come back and post the specific answer to the segmentation of market, opportunities set, and the portfolios. I don't have those numbers directly to hand, and I don't want to misrepresent, so I'll come out with those numbers, and everyone will be able to see the answer to that question. On private equity, it's made a few points. Private equity has been a laggard the last three years. Again, we haven't reported our 2025 results, but there's a few points of me. Private equity returns have been really pretty respectable over the medium and longer term in absolute terms. But given the strength that we have seen in listed markets, it has, particularly in recent years, been difficult for private equity, our private equity, and I think more widely exposure to keep pace with the strength of the returns in listed equities. um in addition i think it's fair to um conclude that there was a lot of capital that's been allocated to the private market space that pushed up particularly in terms of large buyouts and valuations to extended levels and you know maybe quite a lot of tourists in that space uh chasing returns as well uh perhaps less value discipline that's been applied in terms of some of the underlying um investment opportunities more widely And that has created quite a lot of indigestion in the private equity market. There's been less activity in terms of distribution. There's been more by way of continuation vehicles, which are not necessarily a bad thing in and of themselves, but that's kind of recycling capital into new private equity structures. And we've not had the distributions that we would have liked, frankly, in the last couple of years from our private equity allocation. We've had reasonable returns, but as I said, lag those of the listed space. In answer to the question about missed pricings, I'm not sure whether that's listed, unlisted, I would say we're in a world where value is relative. There are not many absolute value opportunities and certainly less value, clear value opportunities than there were 12 months ago. Even the UK and emerging markets have seen a re-rating such that, you know, I think we're in a relative gain. Those two areas are probably one... within listed that you'd say, well, there does look to be value there. Commodities, obviously difficult to value precious metals, but energy would be unusual for a commodity bull market not to extend ultimately to energy. There's many reasons why that might not be the case now, but if that is the case, then maybe there is some value there. In private market space, the value tends to be down. Down the cap scale or down the size scale in terms of the opportunity set, so it tends to be more like mid-market opportunities where we're seeing better valuations. We do undertake co-investment deals and we're very, very value-focused. So more the mid-market rather than the bigger deals is where value lies. Venture and growth. But a bit more speculation, I would say. Valuation is perhaps less attractive in that space, albeit you're dealing with far more nascent businesses in some instances not really delivering profits. So, valuation metrics perhaps a little bit more subjective. I think we're pretty much at time, but I will come back with some specifics on the question that was asked with respect to composition of PE exposure.

Yeah, that's fine. We'll finish with a couple of quick ones if you don't mind then, just as we are on the time. Have you considered hedging your US dollar exposure?

Yes, we have, and periodically we do. So, essentially, you know, risks are somewhat asymmetric in the sense that if dollar declines, then all has been equal, that will be negative for overall returns. So, we don't have a hedge on right now. We have had periodically, historically, and therefore I would consider hedging dollar exposure. It's moved quite a long way already. Trump might be given a green light to some further weakness, but we don't have a position on at present.

I think we'll end here with this question. As an active manager, any views on passive investing now being a great portion of the market? Is it pumping valuations? There's been a huge increase in the last 10 years.

Yes, it's a good question. So passive clearly got a role and, you know, low cost beta solutions have been in the ascendancy in terms of, you know, equity markets, equity sectors, you know, different forms of exposure. And, you know, that's put pressure on fees for active managers. So, ultimately, it's been something of a win-win in terms of the consumer. More choice, lower fees, and obviously helping to discriminate between winners and losers in terms of flows. Was it done to valuations? I'm not a big believer that the passive is driving valuations to extreme. I do tend to think that the market is relatively efficient in terms of... allocation of capital. Now, people on the line will be thinking, well, you know, if that was the case, you wouldn't get crashes and so on. But the market is rational in the sense of assigning what it perceives as the appropriate valuation at a point in time to a given opportunity. It doesn't mean it's right, ultimately. But I'm not sure that passive is really driving the valuation picture personally. It's not obvious to me that that is the case, but undoubtedly it is a very big part of the market, dominant in terms of flows, really important in terms of overall dynamics, but I'm a little bit circumspect as to whether that is what's pushing valuations to extremes.

Okay, thank you. We'll end it there. We've got some questions we haven't answered, but we will get to answer them now, and you'll see them on the website in a day or two. So if I can just ask you for some closing conclusions, Paul, and then we'll hand back.

Firstly, thank you very much for taking the time to participate in the webinar. We do really appreciate your attendance. I hope you find it useful, and I'll leave you to enjoy the rest of your day. Thank you very much.

That's great. Peter, Paul, thank you very much indeed for updating investors. If I could please ask investors not to close the session and we'll now redirect you to provide your feedback. Thank you very much indeed for your time and wish you all a good rest of your day. Thank you.