Manager of major Scottish trust defends focus on unpopular areas
THE venerable Scottish Investment Trust, which has put its fund management arrangements under review, under-performed in the first half but enjoyed an improvement in its fortunes in the latest month.
The £677 million trust achieved a net asset value total return of 14.4 per cent in the six months to April 30.
The chairman of the trust, James Will, noted: “The Company does not have a formal benchmark but, by way of comparison, the sterling total return of the international MSCI All Country World Index (ACWI) was +19.8%.”
The results will focus attention on the investment approach followed by the Edinburgh-based team that manages the trust’s investments.
Led by Alasdair Mckinnon since
2015, the team has followed an avowedly contrarian approach in the belief that firms in sectors that have been in fashion, such as technology, could be vulnerable to a change in sentiment. The team has invested in firms it decided were undervalued by the market.
The first half results were published three weeks after the board of the trust announced it had decided to undertake a review of the future investment management arrangements of the company and had appointed Stanhope Consulting to help it in the review. The trust has been independently managed since it was formed in 1887.
Mr Will noted yesterday that in 2015, the company adopted a high conviction, global contrarian investment approach and the board’s view was that a period of at least five years would be required to evaluate the company’s returns under the mandate.
He observed that the company’s NAV total return has “underperformed” the sterling total return of the ACWI over the five years ended April 30 2021.
Mr Will said the board has invited proposals from established fund management groups, with the experience of managing funds, designed to deliver, over the longer term, above index returns through a diversified global portfolio of attractively valued companies with good earnings prospects and sustainable dividend growth.
He noted: “Any such proposals will be considered alongside the current management arrangements, which the Board notes have delivered strong recent short-term performance.
“There is no certainty that any changes will result from the review.”
The trust did not say if any firms had submitted proposals in response to the launch of the review.
Regarding recent short term performance, Mr Will noted that the trust’s NAV total return (with borrowings at market value) out-performed the ACWI by 8.8% and 6.9% respectively over the three and six month time periods to May 31.
He observed: “Within the AIC Global sector the Company’s NAV total return was ranked first over three months and second over six months to 31 May 2021.”
Mr Will said the investment team believes that the combination of an economic upswing, constrained supply and abundant monetary and fiscal easing may produce a period of above-average inflation. This could create an environment more favourable to the areas of the market that have been unloved in recent years.
In the manager’s review, Mr Mckinnon said: “Although it has been well documented that the way we invest has been unfashionable in recent years, we believe we are well positioned for a sustained change in market leadership which may already be underway.”
He added: “We aim to avoid the losses that accrue to investors who are late to join the party in the popular areas of the market.”
Investments that performed well in the six months to April 30 included BT, Exxonmobil and BP and Banco Santander.
The trust announced a second quarterly dividend of 5.8p per share. It said this was in line with the target to declare three quarterly interim dividends of 5.8p in the year to October 31 and to recommend a final dividend of at least 5.8p.
We believe we are well positioned for a sustained change in market leadership