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.
READ MORE: Pensions expert poses tough questions for Scotland's fund managers
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 under-valued 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.”
READ MORE: Strong quarter for pensions and insurance giant as lockdowns limit driving
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.
“We have explicitly set out to invest in the unpopular areas of the market. Our view is that this is where we will find the best balance of risk and reward for our investments. Just as importantly, we aim to avoid the losses that accrue to investors who are late to join the party in the popular areas of the market.”
READ MORE: Big vote of confidence in Scotland from pensions heavyweight
Mr McKinnon said that while we appear to be on course for an impressive economic rebound, Government and central bank support measures look set to remain in place for the foreseeable future.
He thinks such factors will fuel a rise in inflation for which most investors are unprepared.
“The combination of these factors brings sales and earnings growth to a broader cohort of stocks than has been the case in recent years. We believe this will fuel the nascent rotation into the more lowly valued segments of the market which we favour.”
Investments that performed well in the six months to April 30 included BT, ExxonMobil and BP and Banco Santander.
READ MORE: North Sea oil giant triples profits as coronavirus vaccines boost recovery hopes
The trust announced a second quarterly dividend of 5.8p,. 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.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here