During December, our net asset value return was 1.6% and shareholder returns were 2.9%. In comparison, the FTSE All World Index returned 1.7%. Equity performance was strong over December, and the majority of regions and the broader index posted positive returns in local currency terms; markets largely moved beyond initial concerns related to the new Omicron variant.
December was an eventful month for central banks, with many transitioning to a more hawkish stance. This included the US Federal Reserve, which, following its December meeting, announced that it would double the rate at which it was tapering asset purchases; and the Bank of England, which hiked rates by 15 basis points – its first rate rise since 2018. While monetary policy remains exceptionally loose, the shift occurred despite a substantial rise in COVID-19 cases around the world. This spike was primarily due to the newly discovered, and more transmissible, Omicron variant. Many countries, including France and the Netherlands, introduced renewed restrictions to limit the growth in case numbers. Meanwhile, in the UK, Scotland and Wales reintroduced limits on social mixing. More positively, initial data shows that, while more transmissible than the Delta variant, Omicron appears to cause less severe illness.
In terms of economic data, the UK Flash Purchasing Managers’ Index (PMI), a measure of economic activity, fell sharply during December. The composite PMI for the Eurozone also fell. Elsewhere, German consumer sentiment data dropped considerably as a result of the surge in virus cases. At the same time, the IFO Business Climate Index also fell. Retail sales numbers for the UK showed a pickup during November. This was likely due to early Christmas shopping in response to warnings of supply issues. In contrast, retail sales disappointed in the US.
Equity market returns were generally positive over December. The developed Europe ex UK and the UK were notable leaders compared to the broader index in local currency terms. In contrast, Japan and the developed Asia Pacific ex Japan lagged the broader benchmark in local currency terms but were still positive on an absolute basis. Developed markets outperformed emerging markets in general. Both absolute and relative returns across our strategies were generally positive. Our Global Income and Emerging Markets strategies outperformed on a relative basis, as did our Global Quality strategy managed by Pyrford. In contrast, our external US Growth strategy lagged materially and our Global Sustainable strategy also underperformed the benchmark’s strong numbers. Broadcom was a top performer for the Trust this month, and our overweight position at a fund level benefited overall returns due to the stock’s outperformance of the broader market. Zero weights to Adobe Systems and Moderna also benefited relative returns. In contrast, having no position in outperformer Procter and Gamble detracted over December, as did our overweight to Sea Ltd.
We ended the month at a discount of 6.7%, having averaged a discount of 7.7% over December.
Central banks’ hawkish shift in response to rising inflation was the most significant theme during December, but COVID-19 still presents risks to growth. It is likely that economic and virus-related challenges will continue in 2022. Nonetheless, F&C Investment Trust has a tremendous advantage through our corporate structure, which makes us well placed to withstand further market volatility. We remain focused on long-term opportunities for the benefit of our shareholders.