‘I once ran Scot Mort­gage. My new fund has beaten it’

The Daily Telegraph - Your Money - - FRONT PAGE -

In­de­pen­dent In­vest­ment Trust has flown un­der the radar. It does no mar­ket­ing and was set up to in­vest the per­sonal money of its man­ager and board. How­ever, it is the best per­form­ing global fund over the past five years, de­spite mainly in­vest­ing in UK com­pa­nies.

The trust is man­aged by Max Ward, who ran the now £6.9bn Scot­tish Mort­gage in­vest­ment trust be­tween 1987 and 2000. Since launch in 2000 In­de­pen­dent has re­turned 868pc – beat­ing Scot­tish Mort­gage’s 649pc.

We spoke to Mr Ward about work­ing as a one-man band, how he has the UK’s cheap­est ac­tive fund, and why he thinks house­builders are not prop­erly val­ued.

Most trusts are floated in or­der to gen­er­ate a stream of fee in­come for the pro­mot­ers. We avoided that.

The rea­son for set­ting up the trust was to have a tax-ef­fi­cient ve­hi­cle for us to in­vest our own money. The board has al­ways owned more than a quar­ter of the shares. There’s no per­cent­age man­age­ment fee, and we set our pay at a level that is triv­ial com­pared with the ef­fect of share price changes on our net worth. We could not get rich if the trust didn’t do well. That is why the an­nual on­go­ing charge is only 0.25pc.

I do all the in­vest­ing work, and don’t have teams of peo­ple. Most of the fund is in the UK, but I re­tain the free­dom to in­vest out­side of it.

I’m scarred by the fi­nan­cial cri­sis and so I am much more com­fort­able with com­pa­nies that have a strong bal­ance sheet. Most of the com­pa­nies in the fund have ex­cess cash and those with debt are highly cash gen­er­a­tive.

I’m very at­tracted to com­pa­nies with strong po­si­tions in in­dus­tries that have big bar­ri­ers to new com­pa­nies, such as loan soft­ware provider Alfa Fi­nan­cial Soft­ware, and com­mer­cial tele­vi­sion and speaker

CV: Max Ward

Max Ward ran te the Scot­tish Mort­gage gage in­vest­ment trust ust from 1987 to March 2000 and is a for­mer er part­ner at Bail­lie llie Gif­ford.

In Oc­to­ber 2000, he started the dis­trib­u­tor Mid­wich (see right). Over the past five years we have also taken part in 25 stock mar­ket flota­tions. Ini­tially we took the view we weren’t smart enough to stay on top of small tech­nol­ogy com­pa­nies. Start­ing four years ago, we felt con­fi­dent enough on a case-by-case ba­sis to take part. Now, we have one hell of a port­fo­lio of small tech­nol­ogy stocks – it’s a quar­ter of the fund.

As for the com­pa­nies I avoid, I hate it when I feel that the man­age­ment has not been hon­est with me, I can’t stand con­tract­ing busi­nesses, and don’t like “me too” firms where ev­ery­one does the same thing, so I’m use­less at in­vest­ing in min­ing com­pa­nies.

The lit­tle-known In­de­pen­dent In­vest­ment Trust is one of the UK’s top per­form­ers, writes James Con­ning­ton

I have long been a fan of house­builders. It’s a won­der­ful busi­ness in the UK, be­cause there’s a chronic short­age with no end in sight, and the ab­surd plan­ning sys­tem acts as a mas­sive bar­rier to en­try.

Look at Per­sim­mon or Berke­ley or Bell­way over 30 years. They have been the most phe­nom­e­nal in­vest­ments, but the mar­ket has never recog­nised that, so they are al­ways cheap. You can buy Redrow to­day at un­der eight times earn­ings, which is ridicu­lous.

The worst share I bought was house­hold prod­ucts dis­trib­u­tor UP Global, which I bought at 140p last year. It got to 230p, then it had a big prof­its warn­ing. I got out at 100p, and the price to­day is 38p.

I am cred­u­lous to the point of gulli­bil­ity, whereas most fund man­agers wear their cyn­i­cism as a badge of pride. I have paid in terms of money and em­bar­rass­ment over the years, but I’ve got into some won­der­ful si­t­u­a­tions, too. The trust’s short-term per­for­mance has been freak­ish. Logic would in­di­cate once the per­for­mance falls away, so will the pre­mium. I find it very dif­fi­cult to un­der­stand the logic of buy­ing this trust at this price.

I told the board what I wanted and pitched low – at £50,000. Once it was clear things were go­ing well, it went up to £100,000. Over the years, it in­creased to my cur­rent £200,000. I first bought Mid­wich in April 2016 when it floated. It’s the lead­ing dis­trib­u­tor of au­dio-vis­ual equip­ment, such as tele­vi­sions and speak­ers, in the UK and is four times the size of its near­est ri­val. Thanks to ac­qui­si­tions, it’s also now the leader in Ger­many, France, Spain, Por­tu­gal, Aus­tralia and New Zealand.

It sells to in­ter­me­di­aries, such as a con­trac­tor build­ing new stores that need vis­ual dis­plays, rather than to con­sumers.

There are two in­ter­est­ing as­pects to the kit it sells. First, tech­no­log­i­cal change is mas­sive, so there’s a con­stant need to upgrade. Sec­ond, cus­tomers are heav­ily de­pen­dent on the ad­vice of staff who know ev­ery­thing about what’s hap­pen­ing in the in­dus­try. One of the ways Mid­wich has built its dom­i­nant po­si­tion is hav­ing teams who know ev­ery­thing about the lat­est kit avail­able. Mid­wich has a strong pro­pri­etary el­e­ment to its busi­ness, un­like most dis­tri­bu­tion firms. Be­ing on top of the mar­ket and know­ing what fits cus­tomers’ needs has en­abled it to in­crease its growth mar­gin for each of the past 13 years, in­clud­ing dur­ing the fi­nan­cial cri­sis. So you have a busi­ness grow­ing at 5pc to 10pc, with high lev­els of prof­itabil­ity. On top of that, it has a phe­nom­e­nal track record of ac­qui­si­tions. For ex­am­ple, it bought a French com­pany that was com­ing out of re­ceiver­ship, put new man­age­ment in, and trans­formed the busi­ness. The mar­ket now recog­nises the story, un­for­tu­nately. We orig­i­nally paid 218p per share, and now the price is around 600p.

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