F&C Investment Trust Aktie

Good morning, and welcome to the F&C Investment Trust plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to Fund Manager, Paul Niven. Good morning to you.

Okay. Good morning, everyone. Thank you very much for joining this webinar. Over the next 45 minutes or so, I'm going to cover 2 main areas. Firstly, we introduced our interim results yesterday. So I'll give you an overview of how the trust has performed over the first half of the year, some of the key performance drivers, some of the activity which we've undertaken. And then I'll move into some comments with respect to the current market backdrop, the outlook, the opportunities and risks as we see it.

So let me start with a very brief background on the trust. I think we have many shareholders online. But just very briefly, as you know, world's oldest investment trust, a very long history of delivering strong returns for shareholders, I believe, and consecutive dividend rises, consistency in terms of management. I have been responsible for the portfolio and the trust since mid-2014, so over 12 years now. And we have scale. Scale in terms of assets that we oversee. We're a member of the FTSE 100, and our market cap is over GBP 6.5 billion.

In terms of aims and how we seek to deliver outcomes for shareholders, we're looking to deliver long-term growth in capital and income. So very much focused on growth assets, exposure to listed and unlisted equity, so listed and private equity, blending a range of focused active strategies and the outcome that we look to deliver is a consistent performance outcomes for shareholders and value for money. And again, I'll give some context as to how we've done, not just over the first half of the year, but over the medium to longer term as well as we go through. But getting into the detail, we did, as I said, release our interim results for the first half of the year yesterday. And this slide gives a summary of what we reported.

Now it was a very strong period for global equity markets, lots of volatility, but a strong period in sterling terms for global equity markets. Conflict in the Middle East was clearly a point of focus, adding to market volatility and a really exceptional period in terms of some individual stock contributors to returns. So what I mean by that is there's some tremendous gains from individual stocks over the first half of the year, which we'll explain as we go through.

Another key theme clearly was that of AI and particularly the impact of AI infrastructure spending driving returns within the market. Magnificent Seven, that small core of very large disruptors that has led the market for many years. They actually underperformed market indices in the first half of the year, slightly losing value actually, but significant dispersion in returns within the Mag Seven and across the market. Now several of our holdings doubled, tripled in periods in some instances. And I would say, in summary, within the underlying strategies that we run, which we'll get into detail of some of those exceptional stock returns were either key contributors to strong returns from individual components of the portfolio or conversely, in a number of instances where we didn't hold these highly performing stocks, it was a detractor from returns in some instances meaningfully. Again, I'll give you a bit more detail on that as we go through.

But the headlines in terms of returns that we delivered for shareholders in the first half, 12.8% in terms of shareholder return. That was ahead of the benchmark return of 12.6%, marginally ahead, while our NAV was slightly behind at 12.4%. The reason that the shareholder return was slightly ahead of NAV was because our discount narrowed, ended the period at 6.6% at the end of June, and we did buy back around 0.7% of shares in issue over that 6-month period. Net revenue return per share increased by 8.4% so up meaningfully. And our underlying portfolio of assets delivered a return of 11.8%.

And just on this point about exceptional returns and putting some numbers to it, some of the stock individual -- sorry, some of the top individual stock contributors to our relative returns were Applied Materials, up 186%. SK Hynix, a Korean listed company, which has delivered tremendous returns, but also been very volatile, up 284%. ASML, European semiconductor play up 85%. But conversely, some limited exposure to names like Micron, up 310%. Intel, familiar name, up 284%. And I think the standout performer over that 6-month period, SanDisk up 872%. So there was incredible individual returns.

And as I said, holding some of those very highly performing names was accretive to returns, some strategies lacking exposure in a number of instances to names like SanDisk, for example, that did detract. Private equity, you'd be aware that private equity is a differentiator in terms of the trust. A good period for private equity holdings up 9%, but they did lag listed market returns. And we did announce our first interim dividend, which is just under 1p per share at 0.99p per share, and the Board are committed to another rise in 2026, and that will be the 56th consecutive annual rise. As I'm sure you will be aware, there was a 4-for-1 share split for the company's shares. And in terms of performance returns and outcomes, we have, as I will show you, delivered returns which exceed the median peer year-to-date 1, 3, 5 and 10 years in both NAV and shareholder returns, which is obviously pleasing.

And in terms of this point of value for money, we continue to think OCF, that's ongoing charges, a measure of cost on the trust of 0.45%, which is flat in the year. So that's the highlights from the slide. In terms of that 12.8% shareholder return that I mentioned, that was made up of a portfolio return of 11.8%, as I already said, positive contribution from gearing. So the fact that we borrowed to invest, that was positive in a rising market. We bought back, as I said, 0.7% of shares in issue at a discount. Again, that was accretive to return modestly, changing the fair value of our debt. The fact that interest rates -- market interest rates rose slightly over the period that reduced the fair value of the debt, which added slightly to NAV. And then taking off the impact of management fees and other expenses takes you to the NAV total return of 12.4%.

Moving from that 6.8% end of period discount to 6.6% added to shareholder total return, meaning that shareholders received 12.8% over the first half of the year, as I said, slightly ahead of benchmark over the period. Now in some detail, this shows the allocation to North American strategies, European strategies in terms of listed equities, Japanese listed equities, emerging markets and global and then our allocation to private equity. And then the second column in terms of the numerical component shows the underlying allocation. So that shows in terms of listed and unlisted holdings, how much of our investments are in North America, how much in Europe and so on.

We then show the benchmark weighting, portfolio performance and then what the index return was. So this is intended to show you at the top level how much we've got geographically invested in North America and elsewhere, how that compares to benchmarks and then what the underlying returns of the geographic components were. Now you can see here that North America -- our North American holdings lagged over the period as did Europe, which does include the U.K. that component gained by 9.1%. Emerging markets, 18.7%. That was the strongest component in terms of returns geographically on the portfolio. Japan, 11.6%. Global strategies, 13.5%. So all components delivering positive returns. Within that global strategies component where we delivered 13.5% we've got a strategy called Global Focus. That's a quality growth strategy that outperformed broad index return delivering more than 20% over the period, while our income-focused strategy delivered 9.7% and global enhanced 9.2% in combination, as I said, global strategies delivering an excess return against the benchmark.

Within the U.S., it was a period where value stocks outperformed growth, value indices delivering around 18% against 7% roughly from growth and our allocation stance within U.S. equities was helpful for returns. What do I mean by that? Well, we had more in value stocks than we did in growth, value outperformance. That was helpful, but stock selection was a modest detractor despite the fact that JPMorgan, who managed the growth component delivered a return of 9.2%, as I said, ahead of the growth index return of around 7%. Our value managers, Barrow Hanley and a strategy run by Columbia Threadneedle were both lagging the wider indices. And I would note that for those that are interested in the detail, within the U.S. market and within the value indices, again, really quite an extraordinary period, Micron and SanDisk, 2 names which benefited very materially and which are referenced already up by 310% and 870%, respectively, in that 6-month period. They were both actually in the value index.

And Barrow Hanley, for example, didn't own those names and not owning those 2 names accounted for all of their underperformance in that first half period. Interestingly, a name like Micron is now in the growth index rather than the value index given the uplift that we've seen in terms of stock price and the associated value of that stock. As I said previously, private equity is a good period, 9.1% is a very respectable return from private equity, but that 9.1% did lag strong returns from listed equity markets.

Proportion in private equity was flat at around 11%. We selectively made some new investments. And again, getting into a bit of the detail within that private equity component, Schiehallion was a highlight. That is a listed holding closed-ended trust that is run by Baillie Gifford. That was up by around 40% over the period, benefiting from uplifts in names like SpaceX, which obviously listed towards the end of the first half. Pantheon, who run a future growth program for us, investing in venture and growth names, that was up by around 11%. And then the newer commitments that we made through Columbia Threadneedle, they were up by 5% over the period. So it's a good period overall, I would say, from private equity, but lagging strong listed market returns.

This slide, which many of you will have seen before, gives an overview in more detail of those allocations that we have in the portfolio. I'm not going to dwell too much on this slide. There's a lot of detail here. There were no new strategies, which we incepted during the first half. There was no change in managers over the first half either. We did make some allocation changes, which I'll come on to in a moment. But just to remind you about how we run the trust, we've got a range of focused strategies, which are outlined here, each of which are looking to do something slightly differently in terms of stylistic exposure, either investing with a growth bias, value bias, quality bias or combinations thereof and investing on a regional or a global basis in the listed space, and we blend together those strategies to incrementally add returns while reducing risk on the portfolio.

And then in the private equity space, we've got a couple of main strategies, that Pantheon future growth exposure that I mentioned, that's a bespoke program run by us -- run for us, I should say, by Pantheon, investing into leading venture and growth managers and then a range again of bespoke fund and co-investment exposure run by Columbia Threadneedle. And on the listed side, all of these strategies are run within separate accounts, so not fund of funds, but separate accounts mandates that we specifically have mandated either through internal management arrangements with Columbia Threadneedle or external managers with JPMorgan, Barrow Hanley and Invesco being the primary third-party managers. And as I explained previously in prior webinars, Invesco were appointed just in the earlier part of last year to manage that emerging market component for us. So that's an overview in terms of the underlying strategies that we have in the portfolio.

This slide, again, quite a lot of detail here, and I'll draw some of the highlights, shows you how allocations have changed through time. It's got end of year periods, end of year exposure for the last few years and then the end of June exposure. You can see periodically, if you go to the left-hand side of this slide that we've managed exposure quite actively between growth and value in the U.S. We've got more, as I said, in value than we do in growth at the present time in that U.S. market. We have been selling U.S. equities that was last year and in the first half of 2026 as well. U.S. core, you can see has been reduced. That's the third set of bars along. That's been reduced quite meaningfully over the past few years. But on a combined basis, we sold around about GBP 240 million out of U.S. core, U.S. large cap growth in the first half of the year.

We purchased emerging markets. There's around GBP 135 million worth of physical equities bought in emerging markets in the first half of the year. And again, we've increased our exposure there previously. We also made some increased allocations towards global focus. That's quality growth mandate that I mentioned. And we made some divestments from Europe, which is a smaller portion of the portfolio than it was a couple of years ago. So those are the main changes made over the period.

We did also, I should say, add some exposure to U.S. and emerging market equities during that period of weakness at the onset of the conflict in the Middle East. So we took the opportunity to buy GBP 80 million worth of derivatives contracts on EM and U.S. indices during that point of weakness after the U.S. and Israel commenced military operations against Iran, and that's proven thus far to be a profitable trade because obviously, markets as we speak right now are very, very close to record highs in the U.S. and record highs in the U.K., for example. Now just a few comments on the U.S. market and how that's performing against the rest of the world and also on the Mag Seven. We have, as I said, in recent years, been reducing that exposure to the U.S. It's still the single largest component of the portfolio geographically.

The exposure there has been brought down. The U.S. has begun to lag global indices over the course of the past year or so, 10 years to the end of 2025, you can see the gray bars, the S&P, that's the U.S. bellwether index that was returning more than 15% per annum, well ahead of non-U.S. equity indices and Magnificent Seven, a key contributor to that return profile. Since the end of 2025 -- or sorry, during 2025 and subsequently into 2026, however, we have seen the U.S. begin to lag in performance terms. And the Magnificent Seven also lagging at the end of June, the Magnificent Seven group of stocks were actually down year-to-date. They're now up about 4%, but again, lagging wider index returns. So this point of -- the U.S. is still doing very well in absolute terms, but it is beginning to lag non-U.S. indices. And that picture has carried on through 2026 thus far.

And again, this slide just gives a sense of what performance of the U.S. market was in 2025. That's the orange line there on a relative basis against the rest of the world and then shown over the course of 2026. So the picture is the U.S. is no longer leading global equity markets. And a big reason for that is due to the Magnificent Seven no longer delivering those exceptional returns that we have become used to.

A few words on revenue and dividends. Again, a lot of information on this slide. The highlight I gave you already was that we had an 8.4% in net revenue return per share over the first half. We've got higher levels of revenue reserves equivalent to around 7.2p per share at the interim period, and that compares to our full year dividend, which is adjusted for that 4-for-1 share split of 4.15p per share that we paid in 2025. And the Board have indicated their intention to deliver another rise in dividends in 2026, which, as I said previously, will be the 56th consecutive rise in dividends for the trust. Look-through exposure, again, I won't dwell on this sort of largest single component. North America, again, this does include private equity and technology is comprising a large component of our overall listed exposure.

Gearing, a few words on gearing. I've represented gearing here, including the futures positions, which do increase our overall market exposure, although we're not technically borrowing to achieve that increase in exposure to listed equities. But you can see over the first half of the year, we modestly raised gearing levels, again, taking advantage of an opportune time to raise exposure to listed equities during that period of weakness after the conflict with Iran began. So gearing raised modestly over the period. The other thing to say is that we did have a maturing long-dated loan during the first half of the year. So we had EUR 42 million debt, which matured. We took out what we call -- revolving credit facility, which we can revolving credit facility and put to work in terms of equity investments as well.

This shows you a breakdown of our borrowing costs. We are very fortunate to have a substantial amount of long-dated debt, which we secured at very low fixed rate. So this shows you the breakdown of that debt, including that revolving credit facility that I mentioned and the interest rate that we pay on debt, which matures 0 to 10, 10 to 20 and so on years out. So the blended cost of debt is around 2.6%. When we include the revolving credit facility, if you exclude that, it's around 2.4% and we've got more than GBP 600 million worth of debt on the trust as things stand right now. Discount, as said, this gives you a longer-term perspective in terms of year-end discounts where we ended the interim period drawn in slightly at 6.6% we bought back 0.7% of shares in issue. And this gives you a picture in performance.

Now there's numerous ways to consider performance outcomes. Obviously, when one looks at shareholder and NAV returns that we have delivered, they're very strong in absolute terms, 12.8% year-to-date, 28.3% in shareholder return terms over the past years -- past year, sorry. And when we look at compounded returns 3, 5 and 10, again, it's been a really exceptional period for investors in the trust, driven by strong returns from listed equities predominantly. So very pleasing, obviously, in absolute terms. I also show you the rank of the trust against the AIC peer group. Now there's only a small number of peers and a smaller number of peers than we did have 1 or 2 years ago within that global sector. So overall periods, we're ranking first, second or third. And again, it's pleasing to see over the 5-year period, we are #1 in shareholder return terms and in NAV terms, and we do make comparisons against open-ended equivalent and also the market benchmark.

Now a couple of points I would just draw out in terms of these performance outcomes beyond the obvious statement that they are strong. But it is very pleasing to see high levels of consistency of returns with respect to our peers in particular. We are in a unique position, having delivered returns which exceed that of the median peer in shareholder terms -- return terms and NAV terms over all these periods.

And that speaks to this point about our focus on delivery of consistency in terms of outcomes for shareholders. And it also speaks, I think, to this point on diversification. It was a period really, as I said, of exceptional returns from some individual stocks. Diversification helps to capture returns from a wider range of opportunities than focused portfolios. So as I showed you in the slide earlier, we do have a diversified portfolio, but blending together a range of focused strategies, and that has proven to be advantageous in terms of capturing those outsized returns from that small cohort of stocks, which really have driven markets over the first half of the year.

Okay. So that is summary in terms of the interims. I'm going to make some comments on the outlook. I'm going to try and run through this relatively quickly because I know there are questions that you want to get to. Starting with the energy market, Iran, conflict in the Middle East. Now these slides were updated a few days ago. Obviously, things have moved on. We're back to another cease fire. We do have another couple of weeks until that memorandum of understanding expires. There was a 60-day period, which was given for negotiation that expires on the 20th of August, but we're in a bit of a lull in terms of obviously conflict in the Middle East at present.

The chart on the left here shows you the collapse in terms of tanker crossings in the Strait of Hormuz. Everyone on the call will be aware that, that is a critical area in terms of energy and commodity supply for the rest of the world. It's had a very big impact in terms of this disruption on the oil price, clearly, amongst other commodities and related areas. But comparing on the right-hand side, the oil curve, this is from the market of expectations for future oil prices. You can look at what the oil curve was seeing before the conflict began and that is the orange dotted line there pre Iran's attack and far lower than where we are now, which is a dotted blue line.

But the market is still assuming that there is, I think, going to be some resolution to the stress in the Middle East. We would concur. Our view is unchanged. We think that both sides do have a clear incentive to reach a resolution. I think it's fair to say that Iran does remain incentivized to stretch negotiations out at the present time. The U.S. does appear to be in a relatively weaker position and a weaker position than it was several months ago. Military escalation is unlikely to unblock the current impact, but we should expect some more volatility, persistent threats in the Strait of Hormuz. The most likely exit, I think that we will see will involve some kind of "service charge" for the Strait of Hormuz on an ongoing basis won't be regarded as a toll, but it will effectively be the same outcome. But the market does similarly believe that we're not in a permanent situation of disruption.

The oil price is expected to moderate from current levels in coming months and out into 2027. But I would say that while there was a response in terms of the oil price, there's been estimates that just over 9 million barrels per day of production was shut in across key Middle Eastern producers during recent months. That's equivalent to about 9% of global supply. That shortfall that the market has faced has largely been met with inventory drawdowns. Global stocks have supplied the equivalent of up to 7 million barrels per day. And you've seen that with U.S. crude and refined product exports, that's shown in the gray line on the left, that's helped to bridge the gap in terms of lack of supply. But there's clear limits as to how long this can continue. Inventories are falling, we may well be approaching operational lows over the summer. So the situation is becoming more challenging. But the chart on the right shows European gas supply. And it does help to explain why the broader impact in terms of disruption has been more contained than was the case in 2022.

Europe is less dependent on pipeline gas and LNG, which is shown by that shaded -- the shaded gray area is now playing a larger role. New supply is going to take time to come through. So prices are going to remain volatile. So the upside scenario for oil moving to $70 and if one looks at futures right now, it's currently around $84 when one looks at Brent. But to get a meaningful decline from here for the ceasefire to hold, obviously, for low-level attacks to similarly cease some tentative reopening of the Strait of Hormuz, pause on U.S. sanctions on Iranian oil and a clear progress towards a more durable agreement. And clearly, that's what we're hoping for. Conversely, the more bearish scenario where oil moves towards or through $100 would be another period where diplomacy breaks down, attacks widening again in terms of scope, scale, geography, Strait of Hormuz effectively closing, disruption to the Red Sea returning conflict lasting beyond the U.S. midterms, that's November and inventory drawdowns slowing. So it remains fairly balanced, but we and I think the market do expect some resolution.

So despite all the noise, the global economy has been, I think, more resilient than many people would have expected. The chart on the left shows 2026 consensus GDP growth expectations. That's the orange bars there against 2025 the blue. So Europe and the U.K. have seen the biggest downgrades, but global growth has only eased in terms of expectations from 3.2% to 2.9%, so a very modest downturn. U.S. looks resilient. Growth there is still expected to be just north of 2%, fiscal support, easier financial conditions, AI-related investment, all helping. But on the right-hand side, you can see that we've got above target inflation, tight labor market, and that has brought the risk of further rate rises back into focus. So Middle East conflict lifted energy consumer price projections quite meaningfully actually, and that has led to an upgrade to rate expectations. People have been expecting rate cuts and now rate hikes are on the agenda, driven by this changed inflationary backdrop.

In a bit more detail on the left-hand chart here shows you a slightly longer-term perspective in terms of the inflationary backdrop, still relatively contained, but inflation has not moderated to the extent that had been hoped. Europe does appear more exposed than many other areas with the energy shock already bleeding into prices. The ECB has hiked by 25 basis points in June. Markets are pricing in another couple of hikes. As you can see on the right-hand chart from the ECB, they're also expecting a hike from the Bank of England, one from the U.S. Federal Reserve, more from the Bank of Japan as well. Our view will be slightly more constructive in summary. We get too caught in all of the numbers, but we would expect some less tightening or less tightening from the Bank of England than markets imply, probably more balanced than in terms of the outlook for the U.S. Federal Reserve. And the market has similarly moderated their expectations from 2 hikes to closer to 1 for the U.S. now.

Government bonds, this chart -- or these charts show you the U.K. gilt market and other global bond markets. Interestingly, U.K. 10-year gilts are higher than many other developed areas, closer to 5% in the U.K., well above what we see in the U.S. and elsewhere. And interestingly, the U.K. has responded more negatively in terms of move up in government bond yields than many other developed areas. We think there is -- some of these concerns are somewhat overstated on balance with respect to the U.K. Obviously, it remains to be seen what the domestic political agenda looks like in terms of how more fiscal expenditure is going to be funded, but we do think there is value now actually in the government bond markets.

Corporate earnings. Now corporate earnings have really driven equity markets year-to-date, surprised very, very strongly. That green line on the left-hand chart there shows you expectations for the global equity market in terms of earnings growth for 2026, and there's been massive, massive upgrades, really, really unusual to see the extent of upgrades that we've seen outside of recovery from a recession. So obviously, there's been no recession and no sharp economic recovery. In fact, economic growth in the U.S. is going to be slightly lower this year than last. But nonetheless, it's been a massive upgrade to earnings expectations.

And the chart on the right here shows you expectations across the main regions at the beginning of the year, that is the gray dot there and where they are at the latest reading. So there's been upgrades from the beginning of the year expectations everywhere with the U.S. and emerging markets really the standout areas. And a lot of this has been driven by technology and AI in particular, but also earnings. They've been revised higher everywhere. Within emerging markets, upgrades have been concentrated, as you would expect, in Korea and Taiwan, that reflects AI demand. In Latin America, you've seen upgrades driven by higher commodity prices. But that -- these earnings upgrades really supporting equity market progress.

Big dispersion within sectors. Energy sector on the left-hand side of the left chart there, now expected to deliver some of the strongest earnings growth in 2026, which is a big reversal from negative growth last year. IT also expected to deliver very, very strong growth, but building on very good results last year. On the right-hand chart, we get into the technicalities. This just shows you the spread in terms of performance between the best and the worst sectors in the U.S., unusually wide dispersion of returns within the market from a sector perspective. Breadth remains narrow, I think, is a key point.

Magnificent Seven, which, as I said, have been lagging. Again, a lot of detail here, a few points to make. We can look at the forecast for the Magnificent Seven in terms of their earnings growth projections. 2026 now expected to grow earnings by 32% against the wider market, which is now at 24%. So very strong growth from the wider market, that's stronger still from the Mag Seven and way higher than was expected at the beginning of the year.

But on the right-hand chart, another key point is that -- and we've had huge capital expenditure plans outlined by the hyperscalers who are obviously driving this AI infrastructure spending boom. And you can see that capital expenditure plans for the Magnificent Seven -- or sorry, capital expenditure for the Magnificent Seven, which is the blue line there, has overtaken free cash flow and is on current projections expected to rise further. So AI, rapid technological progress, but more limited near-term commercial returns in terms of those that are making the investments. The current pace of spending really rest on expectations of future monetization and the belief that these first movers are going to secure a lasting advantage.

Moving on to equity returns and valuations within technology. There's been a clear rotation from software towards semiconductors and hardware over the past year. This is partly reversed over the past month. That's the blue line, the Philadelphia Semis or SOX Index, which has a phenomenal period over the past year or so, came back about 20% in July, bounced in recent days from that. AI has clearly raised questions about which part of the ecosystem are going to benefit most. The market has concluded that software does look more exposed to disruption given AI's ability to automate coding and related tasks, while semis and hardware do look to be direct beneficiaries of the investment cycle.

So this has supported far stronger technology performance in Japan and emerging markets shown in the right-hand table there again a few days out, the market has been very volatile, but indices such as Korea and Taiwan have really benefited with heavier semiconductor and hardware exposure. Obviously, I should say that during July, we've had a massive setback in terms of some of these individual stocks and some of these indices with Korea particularly hard hit with retail deleveraging really driving that sharp reversal in the market.

Valuations, I think it's fair to say that equity markets don't necessarily look cheap when one looks at the U.S. Conversely, emerging markets, very much helped by the upgrades to earnings that we have seen and which I reflected on a few moments ago, looking far better than developed market equivalents. Emerging markets, despite the recent setback, have had the strongest year-to-date returns, that's shown on the right-hand side here. But again, quite a big shock -- quite a big downturn over the past month or so. Our view is that in terms of conclusions from all of this work and analysis, central case is still supportive. It's been a very good period for equity markets year-to-date and in recent years.

Global growth has held up far better than expected despite the oil shock supported by policy, resilient demand, strong corporate balance sheets and obviously, AI spending, range of potential outcomes and risks. Obviously, wide geopolitical uncertainty does create obvious risks and that may continue to weigh on confidence. But we would say that the outlook for equities does remain well supported by the corporate earnings backdrop, which looking into 2027 continues to look favorable. So very cognizant of the risks, very cognizant of the fact that the Middle East and geopolitics in general does remain an ongoing source of potential volatility, but we do think that the corporate earnings backdrop is supportive. The growth backdrop is supportive.

There is some scope for positive surprise in terms of interest rate expectations being perhaps a little bit too bearish. So this combination of good growth, relatively modest inflation, interest rates remaining relatively accommodative is a supportive one for equity markets. And for that reason, we do think that the outlook does remain on balance positive for markets over the remainder of the year and into 2027. So I'm going to pause there, going through a lot of detail. Very happy to take any questions. I know that some have come in already.

I'm going to pass over to my colleague, who I think is going to moderate from here.

I will. Thank you, Paul, very much for the detail. My name is Peter Brown. I'm part of the Investment Trust team at Columbia Threadneedle. Thank you for your questions. Please continue to submit them. If we don't get to answer them today, we'll definitely do it in written form in the next day or so, and you can get the answers on the Investment company website.

So Paul, straight into it, lots of questions, you can imagine, lots about similar topics. I'll try and pair 2 or 3 up together. The first one -- we'll start with given the current level of optimism priced into all major stock markets and the failure so far to recognize the downside exposure caused by the Middle East conflicts, should F&C not consider pivoting more towards the wealth protection rather than normal capital growth income measures at least for a period of time?

Well, the short answer is that we will remain focused on growth assets. So we have, for many years, focused on listed equities and private equity. The reason that we do focus on growth assets is in the long term, we think we'll get superior returns from that approach. And I think that has proven to be the case when one compares us to vehicles that are more focused on wealth protection or absolute return. I am certainly not, as hopefully, I conveyed during my presentation, naive to downside risks. But our view is still relatively constructive. And for that reason, we will remain fully invested in equities and private equity. I don't expect that we will be going heavily into cash or diversifying assets anytime soon, and we'll retain that focus on the long-term opportunities, which we do think remain best in the -- in growth assets, equities and private equity.

And on a similar theme, a question is here, how would you react in terms of portfolio management to price volatility such as that seen recently in the semiconductor sector?

Yes. So very topical, very interesting question. So our underlying managers have moderated their exposure to semi. So I'll take one example of that. And for those that are familiar with the trust, my role is to manage the overall composition of the portfolio. As I said, it will take positions between growth and value, typically not taking specific sectoral positions myself, but underlying managers will be active in terms of management of exposure. If I take that global focus component of the portfolio, which is invested globally in quality growth stocks, they had around an 18% long position on semiconductors a few months ago. That has been reined in to around a 10% long position against the benchmark weight on semi.

So still long within that strategy, but roughly half the relative position that they were running. And that is reflected in a moderation in the semis exposure that we have, the trust overall. So we were running -- we're roughly -- we've taken roughly 1/3, I think, at total portfolio level out of the long semis position that we had previously.

So it will be actively managed, but many of our underlying strategies, managers remain constructive on the AI theme in terms of playing beneficiaries of the huge AI expenditure, which is ongoing. It shows no sign as yet of slowing down and in many instances, see now very good value in a number of these stocks, which have had quite a material setback which are trading on relatively low multiples. I would say just adding one more piece of detail, one needs to be a little bit -- you can take a stock like Hynix, which is a South Korean name, which has fallen very, very heavily over the course of the past month or so. The forward multiple in that stock has fallen from high single digits down to somewhere around between 4 and 5x forward earnings, which is very low. The question is how sustainable are those earnings because we know many of these companies are over earning at the present time. But as I said, we do expect that, that strong earnings environment for semi AI CapEx beneficiaries will persist and the valuation is better actually than it was a month or so back.

I think you've covered. There's a couple of questions on AI, but I think you've covered that in that answer. So we'll move on to the next question about small caps. The latest Morningstar data states that you have 21% allocation to medium and smaller companies, which I haven't checked, but I'm not sure that's strictly true. Anyway, how has this allocation evolved over the past 12 months? Do you see an opportunity to allocate more to medium and smaller companies? And I'll add that with, does the size of F&C inhibit your ability to take meaningful positions in smaller companies? If valuations point to a good opportunity in medium and smaller companies, would you be able to take advantage?

Yes. So on small caps, I'm not familiar with the methodology that Morningstar used to categorize our exposure, but we don't have a small cap allocation. We did, as I showed in terms of the allocations that we have in the portfolio, how they moved about through time. We did divest in entirety from a bespoke small cap allocation that we had several years ago, that proved to be pretty well timed actually because small cap subsequently underperformed large caps quite meaningfully. We don't have a small cap allocation right now. The way that the portfolio is run is essentially probably large caps and then we've got this private equity exposure. And that private equity exposure is largely in very small companies, right, that would be in the smaller micro-cap space.

So it's more of a barbell with large cap and unlisted smaller company exposure through our private equity holdings and a chunk of that is invested in what we call mid-market private equity, and that's typically where the enterprise value of the opportunities is less than GBP 500 million, which is pretty small in terms of size. I don't have any immediate plans to go back into the small cap space, but where we choose to do so, then we could do that either by buying a pooled investment or by reincepting another bespoke mandate, which we did have previously. I know there's been some pickup in small cap performance. I mean it depends on what index you use or what geography you look at. If you look globally, small caps are pretty much in line with large caps over the course of the past year and year-to-date. Obviously, within that, you can see different geographies having better returns.

In the U.S., there's been a much more meaningful pickup over the course of the past 6 and 12 months. But I don't think that we're at the present time, really foregoing much by way of opportunity cost. It's fair to say that they're trading on a discount in general to large caps. I would have a view that many of the current trends, which are preeminent in the market do suggest that large cap names will continue to benefit. It's about more concentration in terms of industry structure, the oligopolization of a number of industries, the fact that winner takes all or a small number of companies dominate even beyond technology, I think those trends do and will persist.

And also, there's been quite a change in terms of makeup of small cap indices in recent years where actually the quality arguably in terms of those indices has diminished. We've seen a number of names fall out of the indices. And therefore, comparisons with the past, perhaps not quite as relevant, I think, as where we were previously. So short answer is no immediate plans to go back in small cap. If we choose to do so, however, we do have plenty of latitude in terms of exposure and means of access, but that barbell between large and unlisted privates is the way that we're playing markets at present.

Lovely. Moving on to Asia and emerging markets. The interim report shows you a 4.7% allocated to developed Pacific and over 10% in emerging markets, which I assume includes countries in the Pacific region. Which countries are in the developed Pacific allocation and what is the specific allocation within emerging markets?

Okay. So when one think about developed Pacific, again, different index providers and different managers will probably categorize different countries in different ways. The FTSE who provide our index returns, they will have Australia and South Korea as 2 of the largest developed Asian constituents. Those 2 countries comprise around 80% of the developed Asia index. Other names included would be Hong Kong, Singapore and then you get into smaller areas like New Zealand. Now our emerging market manager, that's Invesco. We give them wider degrees of freedom than that. And their mandate includes exposure to South Korea, for example, even though technically, it sits within the developed Asia part of the market. But MSCI and FTSE categorize things slightly differently. The main difference is Korea and whether that's characterized as an emerging market or a developed market. Again, there's a debate, but that's the most meaningful difference in terms of index constituents. Hopefully, that answers the question.

Yes. We have a follow-up question from someone else. Are you concerned at all that emerging markets could be getting overheated?

Yes, very interesting. I mean, emerging markets, I mean, we allocated more capital to emerging markets last year. We allocated more capital to emerging markets this year. As I said, quite a meaningful increase in terms of overall exposure. To be honest, part of that view was predicated, let's say, 12 months ago by a view that global growth was going to be good. Inflation was going to remain relatively modest. Interest rates were coming down at that point, we thought, and emerging markets were trading at a big discount. Now the combination of those factors would be an environment where you would expect emerging markets to perform well.

Emerging markets, certainly they have performed very well, clearly, the standout area geographically over the course of the first half and over the past year. However, I think implicit in the question in terms of the strength of that return is the fact that they become in part -- in large part, a play on the AI theme. And that is due to performance of semis. So if you look at MSCI Emerging Market Index now, you've got more than 1/4 of that index is Taiwan and TSMC, semiconductor name, a big, big constituent in terms of the Taiwanese market, South Korea is just under 20%. And again, names like Hynix and Samsung, again, plays on AI. So I think it's unambiguously fair to say and conclude that the AI theme has driven a lot of that positive return in emerging markets over the first half and over the past year.

When we look at valuations, and again, there was a slide in the presentation part which showed you that despite the strength in returns over the course of the past year, emerging markets are actually trading cheaper than they were a few quarters ago. Why is that the case? Because earnings expectations have outpaced price rises. We do think that those earnings expectations are justified. And therefore, a lot of heat has come out of emerging market performance over the course of the past month, a lot of underperformance and sharp downward move in Korea, down 40% or thereabouts. I think from recent peak, massive turnaround, a lot of that driven by deleveraging and unwind of positions. So I think a lot of heat has come out. And we remain constructive from here. I think emerging markets look cheap. The fundamental backdrop remains constructive for the reasons that I outlined previously, notwithstanding the fact that the interest rate environment has changed somewhat, so good valuations, good growth backdrop, moderating inflation from here. And the AI theme, we do think does remain constructive for large parts of EM.

And one other point I would just make was that we obviously had quite a big event over the course of the past week with unwinds of a hedge fund called Situational Awareness, which I think was 4x levered AI play. And I think a lot of the -- not a lot, but there's been some distressed sellers, whether it's in the retail space in South Korea and elsewhere, but also some hedge funds, which have led to some very, very sharp unwind of positions. Hopefully, we're through the worst of that in terms of this unwind of overexposure to semis by speculative investors. So again, too longwinded, apologies. I think a lot of heat is coming out from emerging markets, there is value is the short answer.

And a very quick one line, if you can, on this theme. What's your view on Chinese markets or Chinese listed shares in Hong Kong specifically is the question?

We are, I think, within the emerging market component, just slightly long. I will come back to the -- given the time that we're at now, come back to the person with a response to a fuller answer on that.

Yes, fair enough. We're getting close to the hour. I'll just try to sneak in a couple of quick ones as we finish on derivatives. The manager mentioned that derivative position was taken out during the first half. Does the Board place limits on the use of derivatives by the manager? And I'll mix that with, please, can you say something about your use of CFDs, how much are they used and how are they used?

Yes. Okay. So on the latter point, we don't use CFDs. Derivative use, as I mentioned during the first half was futures. So essentially, we bought futures on 2 indices, one the S&P, that's a U.S. index and the second, the MSCI emerging markets. There are clear constraints that we operate within with respect to the use of futures. In simple terms, however, I would say that derivative -- and previously, we have used forwards -- currency forwards to manage currency positions.

But in simple terms, when we use futures, we will use that to essentially effect overall portfolio position. So in this case, to raise exposure to markets, emerging markets and the U.S. The constraints that we operate within are basically those applied to wider leverage constraints that the Board set out where we can't have more than 20% gearing in any form and derivatives form a part of that. There's numerous other aspects to it. But essentially, we're constrained in terms of how much we can use to add leverage to the portfolio and increase market exposure.

And we'll finish on fees. Two questions into one. How do you choose your external managers and how do you decide whether and when to change them? And are the fund manager fees in addition to the annual fee for the trust? If so, what are these fees? And can they be used in the future? What are they in aggregate as a percentage of returns by manager?

Okay. On the second point first, the 0.45%, hopefully, this answered the question. 0.45%, that is the ongoing charge for the trust that includes internal fees, what I call Columbia Threadneedle's fees, external fees like Invesco, Pantheon, JPMorgan, et cetera, and additional administrative expenses. That's all wrapped up in that 0.45%. We disclosed the fees that Columbia Threadneedle charge in terms of -- there's a tiering based on the market capitalization. We get paid, for example, at the top tier, 0.2% on the market value above GBP 6 billion, and there's tiering, which is reflected in our documentation that you can look at, which outlines exactly how Columbia Threadneedle get paid.

On the point of how do we select and change managers, we get paid a market capitalization. So whether we employ an internal or an external manager, the fee to Columbia Threadneedle is unchanged because it's market cap based, not asset-based. And therefore, my motivation is to deliver the best outcome for shareholders. We've got a lot of resources within Columbia Threadneedle within my team, which is 25 strong plus an additional manager selection team, which is more than 20 individuals who are very experienced in terms of selecting managers from across the market. We use them to essentially scope the opportunity set in terms of strong managers with a clear mandate from a geographic and by stylistic perspective.

We test the integrity of the team in terms of personnel, philosophy, process against performance outcomes and where we think it is appropriate and when we think it's appropriate, either but always for strategic reasons, we will effect a change. And as I said, around 18 months ago, we did take a mandate from Columbia Threadneedle and give it to Invesco because we felt that we would get superior return from that third-party manager by virtue of the resources, the people, the process, along with a host of other factors and related considerations. So there's a whole process we go through. And ultimately, the Board have to sign off on any external appointment that we make for the trust. And we obviously share all that diligence that we undertake and the rationale.

Marvelous. Well, we'll have to end it there. Apologies if we didn't get to your question. We will answer them, as I say, post meeting, and you should be able to see those answers on the website in a day or 2. But with that, as a disclaimer comes up, Paul, I'll just pass to you to give a final 30 second summary, and then we'll hand back to the moderator.

Okay. Firstly, thank you very much for your time today. I really appreciate you attending. There's lots of questions which have come through, which I apologize that we have not managed to answer. We will come back to them and post answers as quickly as we can. But thank you very much for your interest. Thank you very much for your support, and I look forward to speaking to you shortly.

That's great, Paul. Thank you very much indeed for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.

Good morning, ladies and gentlemen, and welcome to the F&C Investment Trust PLC Shareholder Update. [Operator Instructions] 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 and publish responses where it's appropriate to do so.

Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Fund Manager, Paul Niven. Paul, good morning.

Okay. Good morning, everyone, and thank you very much for your attendance. We've got quite a large number of shareholders on 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 are 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, we have 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 and recent decades focused very much on growth assets, that's listed equity and private equity. We are around about now GBP 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.

Additional points, which I'll draw out 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 1968, 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 growth assets, 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 JPMorgan, who run our large-cap 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 our emerging markets assets to a third-party manager. We did that about a year ago. The outcome that we look to achieve is consistency in terms of performance delivery. So overriding objective growth in capital and income, as I said, but we look to deliver consistency in terms of 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 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 U.K. equities. And as you be or as shareholders will be aware, we made a decision to globalize the portfolio to reduce that U.K. 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 of global outperforming materially.

We did receive some questions about exposure to the U.K., 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 trust, those invest with the global remit rather than necessarily those that are constrained by investing in the U.K. But it is noteworthy, I would say, that there has been an uptick in performance, particularly in the last 12 months from the U.K. market relative to the U.S. and global exposure. And that has been reflected actually in better performance from some of those U.K.-focused trusts and funds and particularly those with a value bias, those are essentially targeting value stocks or higher income.

Just putting some numbers on that, I'll run through this reasonably quickly. But in the last year, we've seen the U.K. value index as measured by the MSCI up by about 30% last 3 years, 54%. Now you compare that to our returns, and we have delivered 9% and 52%, respectively. 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 U.K. equities specifically have been performing better as have other regions. And U.K. 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.

Our exposure, 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, and 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 U.S. 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.

And you want to compare us against the market indices in terms of exposure, we are moderately long of NVIDIA against the market indices, but typically actually slightly underweight most of the other magnets notably Apple. We've got low-cost fixed rate debt, a point that I've made repeatedly that tremendous advantage in terms of the structure that we have.

Our blended average interest rate is about 2.4%. We've got GBP 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 immunized 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 will 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 of 2.4%, as I said. Repeating the point on dividends, long-term track record. 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 deliver real rises in dividends for shareholders in the longer term.

And performance outcomes, as I said, we're going 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 U.K. and global indices. So some significant strategic decisions clearly moving, as I said, from a U.K. 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 in 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 trust. In the longer term in shareholder return terms, we're typically first quartile. And over 5 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 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, I'm 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 U.S., but value has actually been outperforming in non-U.S. markets.

And notably, again, to the point in the U.K., notably outperforming in the U.K. and elsewhere. So we have diversified exposure between growth value, also taking account of momentum and behavioral factors. Essentially, our view is that if one has -- if one buys cheap stocks, which are good growth prospects and strong momentum, then typically, that's a good starting point in the pursuit of outperformance against market indices.

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 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 off to 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 and portfolio with technology being a significant component of our underlying equity holdings.

So let me move on, give some comments on the market perspective. I'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 on 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 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 in terms of precious metals, all performed well in absolute return terms. So most assets made positive returns. You may be able to see that the S&P500 is closer to the right-hand side of this chart than the left, which says that the S&P was actually one of the less highly performing areas last year. So in local currency terms, that's dollar terms, it returned close to 18%, which was a really strong outcome clearly, but it did underperform areas like the Euro Stoxx 600, obviously European Index, the TOPIX in Japan, FTSE100, 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 U.S. 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 outperformed slightly in the U.S. by 2 to 3 percentage points, but at the global level, it was pretty much little peggings, just under 22% from both of those indices. So the big gap that we have seen in recent years between those 2 areas narrowed 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., it tend to be value is 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 U.S. 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. We 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 -- 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 putting some numbers on that, we started 2025 with around in terms of cable that sterling and dollar. We ended around $1.35. And as I said, we're now about $1.38. So dollar weakness has been eroding returns from the U.S. market.

Moving on. Quite a lot of information on 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 will come into the are point of concern. We've been having this conversation 10 days ago that 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 U.S. intentions there. That's not gone away, but certainly, the temperature with respect to negative outcomes there has diminished materially. But notwithstanding those risks and geopolitics, which are, 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 opine 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% 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 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 will 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 the U.K., probably we're going to see further rate cuts.

Bond markets, look, bond markets may not be a point of attention for everyone on the call, but capital flows across 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 don't want to dwell too much on local politics, but the prospect of Andy Burnham's leadership challenge did seem to unsettle albeit for a short period, gilt markets and concern about further issuance there and perhaps more fiscal large in the U.K.

So look, 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 ruptions 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 U.K. 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, Waymo, those that have been in San Francisco, Los Angeles or some of the other big U.S. cities and now in London, actually, although not fully live, Waymo self-driving taxis are on the way here as they are in the U.S. And the statistics suggest that these -- 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 like the -- 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 in terms of the AI dynamics.

Geopolitics, 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 the picture is reasonably constructive for equities. Fundamental backdrop is good. You 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. I know there's lots of concern about the outlook. I would not in any way seek to diminish that concern and it's entirely possible, probable that we do have a correction as we go through this year. This chart just shows for the U.S. market intra-year declines, that's the red bars against calendar year returns. So declines that happen very, very frequently. Actually, last year, we had about an 18% 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 in market on the market on an intra-year basis.

So we have to go back to the late 2000s really to see that very material downturn in consecutive years, 3 consecutive 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 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 we do employ active management. We do employee 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 to this before, and this shows the impact to our value of $10,000 invested in the S&P since 1995. And if you remain fully invested through that period, what you would have enjoyed in terms of returns, which I think is about $225,000 and then what the returns would have been if you 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 U.S. administration. I would not dispute Mark Carney's assertion that 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 to spell 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 it's been threatening in 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 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 geopolitics tends not to have a lasting influence. But again, I do think it's right to conclude that we are in a different world order than where we have been, and that will arguably increase 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, and running it through quite quickly, some of the points I 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 outturn in the U.S., broadly in line if we look at the beginning of 2025 expectations, better than 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 U.S. 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 2 charts, I'm going to focus on the one on the right. What this shows is regional growth forecast. Obviously, we're in reporting season in the U.S. So we're going to get a sense from -- in the next few days of what actually 2025 growth rates in 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 U.S. 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 I'd make the point that the U.S. broadly delivered on not only GDP expectations last year, but earnings expectations last year. That contrasts with Europe. So Europe, unfortunately, it 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 dots. But there is hope and expectation for a substantial improvement in 2026 and as shown by the orange dot there. So Europe was disappointing. Japan was also disappointing, but positive. The U.K. 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 U.S. 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 the performance of Japan, performance of Europe, the performance of U.K. and outperformance against the U.S. was primarily driven by an upgrade in ratings or the market simply became more expensive in contrast to the U.S., 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, the U.K. to varying degrees, enjoyed an uplift in multiples last year in the expectation of better earnings outcome. So they need to deliver on earnings while the U.S. 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 2 cuts from the U.S. Federal Reserve. There won't be a rate cut today, we don't think, but a couple of rate cuts to come in the U.S., 2 in the U.K. 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 the first -- 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, given the first rate cut happened in September '24, typically is slightly better than that first 12-month period actually. So one didn't know anything else and 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 training computers related products and then what's happening in terms of Magnificent 7 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 Mag Seven are expected to grow strongly in the years ahead. We actually -- our analysts are pretty bullish on NVIDIA in particular. I think that they will continue to meet or exceed expectations. And therefore, what look 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. Q2 run rate in terms of CapEx was $400 billion annualized. We're likely to get $450 billion from Mag Seven in terms of CapEx this year, thereabouts. That's having quite a big impact in terms of GDP numbers, overall growth rates in the U.S. economy, impacting other sectors, clearly, telcos, miners, energy, all benefiting from this explosion in CapEx and driving the AI build-out and data center rollout and so on.

But for the Mag Seven, up until recently, the CapEx has been funded from free cash flow, as you can see. But the gap between the gray 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 Seven clearly. So these companies are moving from capital-light businesses towards more -- to a greater or less extent, towards more capital-intensive businesses. And again, that is a point of concern and note for the market.

And interestingly also what's happening in terms of headcount in those businesses. I think this is quite interesting in terms of not just the Mag Seven kind of parochially, but the application of technology and replacement of labor with capital. The Magnificent 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-light businesses to more capital intensive. And that's a big shift. That is a big shift in terms of the composition for these companies.

Valuations, 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 U.K. and emerging markets. So still big discounts against the U.S., but the U.S. has 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 has narrowed against the U.S. for other developed markets and EM.

On a forward basis, also show you the price earnings for the Mag Seven against the S&P, so they continue to trade at a 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 Mag Seven 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 Mag Seven against the wider S&P has diminished, and you can see that in the bottom right chart there on this slide.

Just one word, 2 words on debt sustainability. Debt level is very high. Clearly, Japan is under a little bit of pressure with respect to potential policy, which the equity market likes in terms of further stimulus, obviously, focus 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 mobs and gilts in the last week or so and also in the Japanese government bond market. debt 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, I'm going to move on to questions in a moment. Conclusions, Rate cuts to come from the U.S. 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 U.S. We're going to see premium growth rates in terms of earnings from the Magnificent Seven, which are trading also at a premium to the rest of the market, but lower than has been the case historically. Geopolitics create volatility, noise, obviously, a concern for us as investors, U.S. shareholders.

But we're looking through that generally into fundamentals and fundamentals remain strong. Credit markets are not signaling 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 a big uplift in terms of valuations. They continue to trade at 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. And the theme of broadening, 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 U.S., 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 constructive, 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 materialize.

So I'm going to pause. I think I'm going to pass back to you, Peter, and we can open for questions.

Thank you very much, Paul. Yes, my name is Peter Brown. I'm partner of the Investment Trust team here at Columbia 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 will, in the interest of time, try and merge a few together. A lot of it is about corrections, a lot about U.S. technology and valuations.

So I'm going to, if you don't mind, sort of put 4 to you all with a similar theme. So it's basically, is the trust overexposed to U.S. 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 the investor community that stock markets may be in for a correction sometime in the coming year? What is F&C's view on this? With what is your view on suggestions that a correction is due to the higher tech stock valuations and the prominence of these in the portfolio? And finally, in the same theme, Cisco have predicted carnage in the U.S. tech sector. Consumer confidence is weakening, but the valuations are extremely stretched. Is it not time to reduce exposure to the U.S.?

Okay. Yes, there's a lot of very good, very relevant, very timely questions around this theme of excess valuation in the U.S. market and U.S. technology stocks in particular. I did see the comments from Cisco overnight. And those with long memories will recall, I think that Cisco was one of those stocks that fell by 90% -- sorry, 80% or thereabouts, maybe more actually. And the aftermath of the dot-com bust took a long -- I think also it 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 -- even though expectations were ultimately met, it took a long time to "grow" into that multiple. So there's a big, big fall. I think let me try and answer it.

So are we in a bubble? There's certainly an awful lot of talk with respect to risks of a bubble in the U.S. 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. And would I be surprised that 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 or in other instances of episodes that turned out subsequent to be a bubble, valuations 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 U.S. and in tech in particular.

So I want to couch it in terms of, firstly, the valuation perspective is rich, but I don't think nosebleed territory that market is going to collapse under its own weight for reasons of valuations alone. I think that -- again, those with long memories, and I started my career in '96, and we have said this before, Greenspan gave the 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's 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 continue 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 dispel concerns of valuation. And certainly, Cisco and other 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 U.S. 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 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, notwithstanding some of the risks that I and others have outlined.

And is now the time to pivot away from the U.S. Again, we will be disclosing our annual results in a month or so's time. But we were net sellers of U.S. equities last year. We're relatively high weighting in the U.S. I think, as I said, there's a good case to be made for the market broadening from here. But I think that's as much about other areas performing better than the U.S. necessarily diving. And if the U.S. really does fall out a bed in performance terms, that is an environment where other markets will certainly not be immune and the U.S. actually does tend, again, notwithstanding dollar performance tend to be a bit of a safe haven and also dollar tends to catch a bit in those risk off.

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 capture respect of what the questions were asking?

Yes, exactly. Yes, you did. So moving out of the U.S. then for change of tack. U.K. question here is that long-standing shareholder, slightly disappointed with the performance versus other investment trusts such as the City of London Investment Trust, Artemis, which I should say are U.K. income funds specifically. Would Paul be prepared to make some direct performance comparisons with competitors over 5, 3 and 1 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 U.K. equities in the portfolio should tariff risks reduce between the U.S. and the U.K.?

Okay. Yes. So on this first point about performance, look, I recognize that the U.S. shareholders, potential shareholders can invest into trust, 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 and ensuring 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 different people on the call will have a different perspective about what our peer group is and who we should compare ourselves against. Our primary peer group that we and the Board discuss is the global sector. And there are now, I think, 10 or 11 trusts in there, and there'll be obviously Scottish Mortgage, Monks and Alliance Witan and others in there. But it's a relatively small cohort now, 10, 11, as I said. I showed the slide earlier on. We've delivered excess returns against the median of that cohort over 1, 3, 5, 10 years in NAV terms and shareholder return terms. So 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 U.K. trusts, and I did look at this in light of the question which was submitted yesterday, U.K. trusts on average have done far better in recent years, in the last 5 years, I think, than last year than the global sector on average. And those with an income or value buys 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 U.K. value holdings over the last 1, 3 and 5 years. So values tend to outperform in the U.K.

So if you've chosen a value stock value approach in the U.K., you've done better in the wide market, so well done from that perspective. And if a U.K. value-oriented trust in the last year, you've done better than global. I think that is true in the last 5 years as well. Last 3 years, it's pretty much the same. And in the long run, 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 U.K. space have had a good period, and I've had a good period by focusing on value.

So I don't regard our performance as 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 U.K. 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 has broadened and performance in the U.K. has been far better in the last 12 months.

On the U.K., so are we looking to allocate directly to the U.K.? The U.K. 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 U.K. discount typically given to U.K. companies as opposed to their U.S. peers on a like-for-like basis. Is there scope for a catch-up? I'd rather allocate capital to other areas like emerging markets in the U.K. would be my answer to the direct question. We actually allocate on a pan-European basis. So just unfortunately, given that the U.K. is now such a small part of global markets, we allocate to U.K., 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 U.S. Probably, yes, there is, and I think there was related questions on that earlier. So I think the pivot probably and we started to move a little bit this way already, is a little bit more balanced in the portfolio. But nonetheless, I still see the U.S. 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 to something different, private equity. Please, can you add some color 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 risks 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 split the portfolio. 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 then will be able to see the answer to that question.

On private equity, just a few points. Private equity has been a laggard in the last 3 years. Again, we haven't reported our 2025 results, but there's a few points I'd make. 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 returns in listed equities.

In addition, I think it's fair to 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, valuations to extended levels, maybe quite a lot of tourists in that space chasing returns as well and perhaps less value discipline that's been applied in terms of some of the underlying 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 of 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 had reasonable returns, but as I said, lag those of the listed space.

Further in answer to the question about mispricings, 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 U.K. and emerging markets have seen a rerating such that I think we're in a relative game. Those 2 areas are probably one areas within listed that you'd say, well, there does look to be value there. Commodities, obviously, difficult to buy precious metals, but energy, 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, maybe there is some value there.

In private market space, the value tends to be 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 of 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 kind of nascent businesses in some instances is not really delivering profit. So valuation metrics is 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.

Yes, 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 U.S. dollar exposure?

Yes, we have and periodically, we do. So essentially, risks are somewhat asymmetric in the sense that if dollar declines, then all else 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. I mean there's -- so look, passive clearly got a role and low-cost beta solutions have been in the ascendancy in terms of equity markets, equity sectors, different forms of exposure. and 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, if that was the case, 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 extreme.

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 2. 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.