This year has proved to be a choppy time for F&C Investment Trust (LSE: FCIT). The FTSE 250 stock had returned some healthy profits to shareholders in years gone by. However, as issues such as rising inflation continue to plague investors in a weakening economy, the trust has slumped over 12% year-to-date. More widely, the FTSE 250 itself has seen 20% shaved off its price.
I’ve long been an advocate for investment trusts. So, trading at a discounted price, should I be adding the trust’s shares to my portfolio?
Diversified portfolio
My main attraction to this stock is the diversification it offers. With over £5bn in assets under management, it invests in over 400 companies in 35 countries. Its top holdings include the likes of Microsoft, UnitedHealth, and Taiwan Semiconductor Manufacturing Company. And this diversity offsets potential risk for my portfolio. In volatile periods, like what we’re currently experiencing, I see this as vital.
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I’m also attracted to the stock because of its investment style. “The objective of the trust is to secure long-term growth in capital and income,” we’re told. And this long-term approach nullifies any shorter-term headwinds that the investment trust may face.
Being the oldest such trust in the world, F&C has also stood the test of time. It has survived wars, along with the recent pandemic. And while previous returns are no indication of future performance, the last decade has seen it return over 200% to patient shareholders. When considering adding the FTSE 250 stock to my portfolio, this is a tempting factor.
F&C Investment Trust also has a strong track record of increasing dividend payments. It announced this year that it would be hiking dividends for the 51st consecutive year. While its current dividend yield of 1.57% is far from mouth-watering, this consistency is nothing to brush aside.
F&C risks
There are risks, however. The trust could be pegged back by its relatively large exposure to emerging markets. This asset allocation makes up 8.3% of its portfolio. While these markets offer attractive returns, they can be volatile at times. And with spiking inflation and the lingering threat of Covid, these markets could suffer in the months ahead. For example, Brazil’s inflation rate sat just below 12% in June.
Yet this is a short-term concern. And as an investor who buys stocks with a long-term outlook, I think emerging markets contain an abundance of opportunities that could boost potential returns.
Compared to its peers, F&C Investment Trust has posted a relatively stronger performance in 2022. Despite its 12% fall, Scottish Mortgage Investment Trust has fallen 40% this year. Monks Investment Trust has also seen its share price pinned back nearly 30%. This once again highlights F&C’s resilience.
Why I’m buying
Despite the challenges the trust may face in the near future, I see the stock as a solid addition to my portfolio. Its diversification is key for me. And the long-term approach adopted by Paul Niven and his fellow fund managers leads me to believe the trust could provide my portfolio with some healthy returns over the long run.
