Unsung hero delivers another stellar set of results

With all the pushy promotion and razzmatazz in the world of investment management, it’s hard to imagine that there could be such a thing as an unsung hero. The successful and outperforming seldom go unnoticed for long. But in Scotland there has long been a consistent winner in recent years. His achievements have gone almost unnoticed.

So step forward (for once) Independent Investment Trust, managed by ex-scottish Mortgage manager Max Ward. The £340 million trust, headquartered in Edinburgh, has delivered another stellar set of results with shareholders enjoying gains of 22.5 per cent in the first six months of 2018.

Analysis of performance by Numis Securities reveals that Ward, manager of Independent, and his chairman Douglas Mcdougall produced the best results in both the UK All Companies grouping and among all listed closed-end funds investing in the UK over this period.

It beat the much feted £7.7 billion global giant Scottish Mortgage Trust, which returned 18.4 per cent to make it the best in the Numis Global category. This follows an equally impressive 85.3 per cent share price gain over the company’s financial year to end November. Over the five years to mid-july, shares in Independent have soared by 236 per cent compared with a 91 per cent average gain in the Trustnet global sector.

What explains this outstanding performance? IIT aims to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities and, if appropriate, index futures. The portfolio is constructed without reference to the composition of any stock market index.

Performance last year was greatly helped by hefty exposure to the UK housebuilding sector (17.5 per cent of the portfolio), where valuations were artificially depressed in the wake of the vote to leave the European Union.

And second, an unusually high number of companies in which IIT invested produced better than expected results. Shares in the technology and communications sectors comprise the largest proportion of the portfolio at 25.9 per cent, with 10.3 per cent in travel and leisure and a brave 9.4 per cent in retailing.

Until 2014, says Ward in the annual report, “we did not trust ourselves to invest in individual small technology companies, fearing that we lacked the relevant specialist expertise. Instead, we delegated the task, very successfully, to Katie Potts and her team at Herald Investment Trust.

“Our results to date have exceeded our wildest hopes, but have not blinded us to the risks of investing in highly rated companies operating in fast-changing markets. Our greater willingness to invest directly in this area has led to a less obvious role for Herald in our portfolio and we have reduced the holding accordingly.” How refreshing that a fund management admits to the limits of its competence and is prepared to outsource investment in such a specialist area.

In the most recent half-year the trust’s big holdings in Fevertree Drinks, Blue Prism (a manufacturer of robotic process automation software) and Ashtead (an international construction and industrial equipment rental company) contributed to its 22.5 per cent total return, including dividends.

So why has this performance been so unsung? This may be largely because the managers themselves have long preferred a low profile. There is no personality cult. Ward is as good as invisible.

The monochrome annual report is free of photographs, eye-catching panels, tables, boxes and graphs. There are no blogs, self-serving mission statements or lofty virtue-signalling on climate change, sustainable development or sermonising on corporate governance. It is about as austere as an expanse of wooden floorboards. And over this, IIT’S performance shuffles across its 50 pages like a pair of muffling carpet slippers.

As if this self-effacement was not enough, its management makes clear that the caprice of markets and their vulnerability to unforeseen crisis and shock can humble the most impressive-looking portfolio. What other investment trust would dare carry this admonition in its annual report: “The company’s policy”, it reads, “is designed to allow the company an unusually high degree of freedom to exploit the directors’ judgment. To the extent that the directors’ judgment is flawed, future results could be unusually poor.”

It’s hardly a signal of “green to go”, rather an amber warning light. But in a volatile era, and one looking ever more vulnerable to geopolitical shock, that is exactly what it is meant to be.

And it is one well merited in the case of this trust, for its investment record has not gone totally unnoticed. Shares in Independent at 784p are standing at a premium of almost 20 per cent to net asset value. There may not be the buzz that normally surrounds a “bubble” rating of this sort. But it is fair to describe the trust as more than fully valued – particularly in the light of that annual report warning light.

That said, Independent fully deserves an accolade – and I suspect most shareholders would prefer the plain vanilla reporting its performance to remain unadorned. Indeed, many rivals could learn from its example.