£800 bn Scots investment funds are replete with cash, so should you be dipping in?
SCOTLAND’S reputation as a world-class financial centre took a knock when its banks blew up in the financial crash.
A decade on, the banks are still in recovery mode – but Scotland’s investment managers have only gone from strength to strength.
More than £800billion is now managed north of the Border, largely in Edinburgh, on behalf of savers and institutions such as pension funds around the globe.
So which of our home-grown crop are worth backing with your cash?
Scotland is the original home of investment funds, which were pioneered in Dundee 150 years ago. And where it really excels is so-called investment trusts. These funds are structured as companies with a board of directors.
As an investor, you buy shares in the fund on the stock market. Your money is invested in other firms and grows or falls with their share prices.
Some of the most respected of the UK’s 380 investment trusts have a distinctly Caledonian pedigree.
Simon Elliott, of stockbroker Winterflood Securities, points to Scottish Mortgage, Scottish Investment Trust, Scottish American Investment Company and Edinburgh Investment Trust as some of Britain’s most popular funds.
‘Mid Wynd International, a fund in the global sector managed by Artemis, is actually named after a street in Dundee,’ he adds.
There are more than 40 investment trusts incorporated in Scotland and a number are still managed by fund managers with a significant presence here, such as Baillie Gifford, Standard Life Investments, Aberdeen Asset Management and Edinburgh Partners.
Scottish Mortgage, the £5.8billion fund managed by Baillie Gifford, is now the biggest UK trust and was promoted to the FTSE 100 earlier this year.
Mr Elliott says: ‘The managers aren’t restricted in what they can invest in and the emphasis is on finding global companies that have potential for strong long–term growth – and it has a very strong performance record on that front.’
The fund has turned £10,000 into £32,770 over the past five years by investing in firms such as Amazon.
Mr Elliott warns that investors could experience a bumpy ride, though. ‘There will be times when the managers’ views are at odds with the market and that could result in volatile performance,’ he explains.
He also picks out EP Global Opportunities, the £142million flagship trust of boutique fund manager Edinburgh Partners.
The fund hunts down companies whose share prices look low when compared with the earnings they expect to receive in five years’ time.
Its top holding is currently oil company Royal Dutch Shell and savers who invested £10,000 five years ago would now be sitting on £29,640.
‘The fund attempts to take advantage of the market’s propensity for short-term thinking,’ Mr Elliott says.
‘The portfolio, which typically contains around 40 holdings, remains heavily invested in Japan and Europe, including the UK, and not so much in the US.’
His third pick is Standard Life Private Equity.
Private equity companies invest large sums of capital in other firms in the hope of turning the business around or growing it rapidly. It remains a ‘highly attractive’ asset class, Mr Elliott says.
‘Standard Life Private Equity undoubtedly provides exposure to a number of the sector’s best regarded names,’ he adds.
The fund has turned £10,000 into £25,920 in five years, with its top holding currently 3i Eurofund V, another investment fund.
Charles Cade, head of research at stockbroker Numis Securities, tips Baillie Gifford’s Edinburgh Worldwide fund.
‘It has a similar approach to Scottish Mortgage but with a more diversified portfolio focused on companies worth under $5billion on the stock market,’ he says. He also likes Baillie Gifford Japan, which has been managed by the same person – Sarah Whiteley – for 25 years.
Another of Baillie Gifford’s foreign-focused funds, its Japanese Smaller Companies, is among the top ten bestperformers over the past three years, with a return of more than 28 per cent, according to AJ Bell Youinvest.
The other main type of fund you can get is called an ‘open-ended’ fund.
Managers north of the Border often punch above their weight here, too, the experts say.
Alan Steel, chairman of Alan Steel Asset Management at Linlithgow, West Lothian, likes the Standard Life’s UK Smaller Companies and Unconstrained UK Equity Income funds.
‘We’ve found that Standard Life have developed managers who take a contrarian, disciplined and patient approach, which is what we like,’ he says. The smaller companies fund has turned £10,000 into £21,460 in five years, while the Unconstrained UK fund has turned £10,000 into £18,970.
David Thomson, chief investment officer at financial planner VWM Wealth, says: ‘We currently favour smaller companies as the global economy continues to improve and investors seek genuine growth.’
He, too, tips the £1.3billion Standard Life UK Smaller Companies and also recommends Edinburgh’s SVM Asset Management’s Europe SRI fund, which is focused on socially responsible investing. It has turned £10,000 into £19,500 in five years.