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

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.