F&C Global Smaller just fails to match rising benchmark

F&C Global Smaller just fails to match rising benchmark – it says that small cap stocks more than held their own against the larger companies, doing particularly well in the US, over the year ended 30 April 2017. The fund’s benchmark is a blended index of the returns from the MSCI All Country World ex UK Small Cap Index and the Numis UK Smaller Companies (ex investment companies) Index in a 70%/30% proportion, and this delivered a total return in sterling terms of 30.4%. The NAV total return was close to this at 29.9% and with the value of the portfolio rising, dilution from the Convertible Unsecured Loan Stock (“CULS”) issue meant that the NAV return on a diluted basis was 28.4%. The share price rose by 27.2% to 1,273p, delivering a total return of 28.5% taking account of reinvested dividends. The board is recommending a final dividend payment of 8.25p per share, up 5.8% on last year’s payment, making a total dividend for the year of 12.25p per share, up 14.5%.

Chairman’s comment on performance

Anthony Townsend, the chairman, says that “All parts of the portfolio produced strong returns. At the market level, US small caps led the way with stocks here lifted by the perception that the new administration under Donald Trump would enact sweeping tax reform, supportive for both the consumer and corporate sectors. There were also hopes that US growth would be enhanced by greater spending on infrastructure projects. Although oil prices have recently fallen in spite of OPEC’s attempt to curb the output of crude oil, the Federal Reserve Bank increased US interest rates twice in a precautionary move against the potential revival of inflationary pressures. 

Growth in Europe improved, driving greater interest in small cap stocks geared into the local economies. UK small cap shares shrugged off initial Brexit driven falls, with the domestic economy proving more resilient than expected after the referendum. The UK consumer continued to spend and there has been some benefit to exporters from the weaker pound. Japanese small cap shares performed well again following a strong 2015/16, with the Bank of Japan continuing to engage in quantitative easing, and we saw better returns at last from Asian and Latin American small caps. These markets recovered after initially falling after the US election on fears that protectionist policies from the new administration could impact upon trade with the US. China’s economy continued to rebalance towards consumer orientated growth, but the pace of expansion in the level of outstanding debt in the country continues to be somewhat alarming.

In terms of the relative performance of the sub-portfolios, a better second half in the UK meant that this part of the fund beat the local market for a seventh consecutive year. Our Japanese fund portfolio was comfortably ahead of the MSCI Japan Small Cap Index, with a bias towards value stocks helpful. Performance in the Rest of the World portfolio, which is predominantly focused on Asian funds was also respectable, slightly surpassing the Asian small cap benchmark return, although Latin American small cap markets did better still.  

In Europe and the US, our portfolios were unable to keep pace with the indices. The more marked underperformance in the latter market was partly due to under-representation in the technology sector which was in favour and also from having less exposure to the smallest market cap stocks which led the rally in the US market following the election.”

Disappointingly, the company found no room for a report from the manager in the announcement.

FCS : F&C Global Smaller just fails to match rising benchmark

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