Trust’s chairman takes fund manager to task

Asia and emerging markets will take over the developed world

When an investment trust finds itself near the bottom of the performance tables, investors may shrug it off as a bad patch. But when the trust chairman has a go at the fund manager, many sit up and take notice.

The trust in question is the £187 million Aberdeen Standard Equity Income. The luckless manager is Thomas Moore, who has been eight years in the post. And the chairman who has taken him to task is Richard Burns.

The trigger point was annual results. In the year to 31 October, shares in the trust fell by 10.2 per cent. Over the same period the FT All Share Index had gained 6.8 per cent. The trust over five years is up by just 15.6 per cent while the FT All Share gained 37.9 per cent. A similar strategy pursued by the £1.2 billion UK Income Unconstrained Equity fund managed by Moore also languishes at the bottom of the performance tables.

Now Citywire’s Investment Trust Insider blog reports that Burns has scolded Moore for a “very poor result”. He said the fall was “a considerable disappointment” because it eradicated the trust’s previous long-term outperformance of the UK stock market.

The chairman said positioning had not been countered by successful stock picking by Moore. “Indeed, the reverse is very much the case.”

However, the problem with such critiques is that they are easy to level when a portfolio strategy is out of favour, as has been the case with many UK “value” stocks. Here Aberdeen Standard Equity Income is not alone – indeed, other have fared as badly, if not worse.

The risk with this critique is timing: managers can be put under pressure to ditch the strategy just at the lowest point in the trust’s fortunes and when underperforming sectors of the market start to enjoy a revival – as many believe value stocks are beginning to enjoy right now.

Burns’ critique is tempered by the acknowledgment of the trust’s “excellent” record of 6.5 per cent average annual dividend growth, and the board continues to back the manager. “We believe”, said Burns, “that Thomas Moore and his supporting team have learnt from this experience and will get back on track. We are encouraged by the fact that our net asset value has outperformed in both September and October.”

And Moore is firm in the belief that, while returns have been disappointing, “the foundations of solid corporate fundamentals and low valuations are in place for a recovery in your company’s performance”.

Shares in the trust are standing at 391p, on a 4.1 per cent discount to net assets and are offering a dividend yield of 5.17 per cent. With signs of nascent recovery, investors should hold. cent in the UK and now it’s 9 per cent, with the overweight bias reversing into emerging markets, which is now over two-thirds [of the portfolio].”

UK exposure is now the lowest it has been during his 15-year tenure of the trust. “Twenty years ago, if you wanted to run a very diversified global trust and have a 5 per cent dividend yield then you couldn’t do that unless you had a disproportionate amount in the UK,” he said. Yields of 4 per cent – around the yield of the FTSE All Share index – are now more common in emerging markets and Stout has begun to allocate there.

“The biggest issue, I think, for the West or the developed world is that they cannot admit that they’re living beyond their means,” he argues. “We’ve had the longest and weakest business cycles on record in the US. What do you do for your encore? Nothing. You’ve got no monetary flexibility... Asia and emerging markets will take over the developed world for the first time since 1820. There’s nothing the developed world can do about it because they’ve got no policies left and we have all these expectations in an ageing population that cannot be satisfied.

“But no politician will stand up and say that because you won’t get votes with that. It’s just a fact: developed markets are horrible and the unfunded liability is unbelievable.”

A refreshing view in the midst of a promiseladen election campaign. But shares in Murray International look fully valued with this view: the shares at 1214p offer a dividend yield of 4.4 per cent but are standing on a premium of 6.2 per cent.