Awards bonanza for a contrarian with conviction

What makes for a top investment trust? Performance, certainly, but also protection of capital. consistency of approach, accessibility for investors – and clarity of purpose and communication.

Few trusts can simultaneously achieve all of these. But one that has scored consistently high on these points does not enjoy the media and analyst attention it deserves.

So, a special cheer is deserved for Scottish Investment Trust. It has just been named “Best Investment Trust” at the Shares Awards 2018.

This is the third award win of the year for The Scottish, following its success at the Online Personal Wealth Awards in April, where it was awarded ‘Best Investment Trust for Income’ and after winning ‘Best PR Campaign’ at the Association of Investment Companies (AIC) Shareholder Communication Awards in May.

One of the oldest trusts, in a sector that celebrates its 150th anniversary this year, the independently managed Scottish Investment Trust was also nominated in the ‘Best Investor Education’ category.

SIT is no minnow. This independent, self-managed trust has assets total £800 million What distinguishes it is its high conviction, global contrarian approach to investment providing an alternative to investors seeking diversification.

Investors also benefit from one of the sector’s lowest ongoing charges and highest dividend yields. It has increased its regular dividend for 34 consecutive years.

SIT is not a shoots-the-lights-out high flier: its performance is consistent rather than stellar. Over the three years to November 8 – including the market shake-out in the past month – the shares have gained 60.5 per cent, and over five years by 76 per cent. During these periods they have also sustained an above-average dividend yield – currently 3.56 per cent with the shares at 829p.

Last week I enjoyed a lengthy interview with SIT’S manager, Alasdair Mckinnon. Fifteen years with the company, he graduated MA with Honours in Economic and Social History from the University of Edinburgh and MSC in Investment Analysis from the University of Stirling.

He seeks to avoid investment fashions “and instead look for investments in which we can see long term upside. We actively seek unpopular areas because this is where we believe the balance between risk and reward can be most favourable.”

Looking at the largest shareholdings in the portfolio, some might take issue with the description ‘contrarian’. The list includes such long-established household name companies such as Royal Dutch Shell, BHP Billiton, Mark & Spencer and Tesco, top of the list with a holding valued at £32.2m. Hardly contrarian investments – more like the mainstays of conventional portfolios of yesteryear.

But, says Mckinnon, “none of my peers has Tesco or M&S. Tesco has been an investment disaster for much of the past ten years. And M&S has still got a tough job ahead. For most investors it’s deemed to be uninvestable. But all the problems are already priced in and it has got a good dividend yield”

M&S is all the more challenging given the current slaughter on the high streets wrought by internet retailing. But Mckinnon is not alone in sticking with it. Alastair Mundy, manager of Temple Bar Investment trust and a fellow forager in other people’s investment dustbins, also believes the high street giant falls into the “deep value category” of “mediocre businesses at very attractive prices”. Many of its problems are self-inflicted and within the management’s power to rectify. Both managers put much store by chairman Archie Nor- man and the new management team. Royal Dutch Shell is another Mckinnon mainstay. “It was briefly yielding around 12 per cent. People thought oil was finished. But we say it’s not. Oil and gas are still critical to modern civilisation. And the shares have got great dividend appeal.”

So, while the names may be familiar, the investment approach is contrarian. “People understand how we invest and like our investment approach. To try to be flavour of the month all the time doesn’t work.

“We do tend to hold stocks for long time. Our turnover is unusually low. People tend to over trade. They have all the costs of trading.”

A notable IT success story was the Australian Treasury Wine Estate which the trust picked up when it was out of favour. A long cycle business, similar to the whisky industry, it enjoyed an investment surge and expectations ran ahead of events. SIT cut its holding, now preferring Tesco as its biggest single investment. “What we have is the ability and a knowledge of human and investment behaviour. If something is too good to be true, it probably is.”

Currently the SIT portfolio is comprised of UK holdings – 24.5 per cent of the portfolio, north America 34.5 per cent, Asia Pacific 5.1 per cent and Europe ex UK 14.8 per cent. It doesn’t aim for the high tech specialism that has borne rivals such as Scottish Mortgage aloft. But for a broadly spread portfolio of 50 holdings, on a discount to net assets of 8.9 per cent and an attractive dividend yield, Mckinnon has made SIT a compelling proposition: contrarian with conviction.