Highlighting how some key investment trusts have been transformed.
Four investment trusts that went through change
In a world of increasingly engaged investors, investment trust boards give shareholders unrivalled influence over the funds in which they invest. While OEICs tend to be controlled by their management companies, the boards of investment trusts are independent and supervise a trust on behalf of its shareholders.
Everything from appointing the manager, to monitoring performance, to managing the discount and ensuring that the trust’s objective remains fit for purpose sits under the jurisdiction of the board, which has the capability to make changes either as it sees fit or, in the case of a more significant decision, with the approval of shareholders.
While boards’ regular duties include the management of discount control mechanisms and providing KPIs for the fund managers who run their shareholders’ money, sometimes circumstances dictate that more significant change is necessary. Here, we run through some of the trusts that have experienced material changes of the latter kind in recent years.
For an extended period, Miton Global Opportunities suffered from a discount problem, rarely trading on a discount of less than 10% in the decade to 2016. In 2015, the board decided to take decisive action and introduced a number of new measures to boost demand, including an innovative model to control the discount.
Shareholders have a ‘realisation opportunity’ every three years, which sees the shares of those who wish to leave moved into a realisation pool, taking the negative pressure off the shares for those who wish to remain invested. The shares in this pool are then managed in accordance with an ‘orderly realisation’ programme which prevents negative pressure on shareholders who choose to remain in the main fund.
There has only been one ‘realisation opportunity’ since the concept was introduced; and demand for redemptions was so weak that the trust simply bought the shares back directly – however its presence provides a strong reassurance for investors who are worried that they might be ‘trapped’ in the fund at a yawning discount.
It is unlikely to be a coincidence that, since it was introduced, the trust’s discount has narrowed sharply.
In 2017, following sustained pressure from investors, one of the UK’s oldest and largest investment trusts Alliance Trust changed dramatically. An entirely new board decided to adopt an innovative portfolio management approach, employing eight separate managers to each manage a bespoke highly-concentrated portfolio made up of designated mandates (funds set up specifically for different portions of the trust’s assets), selected and overseen by Willis Towers Watson (WTW).
The process had previously been proved in an institutional structure, so the board had confidence that its decision would pay off. After almost two years under this new system, from April 2017 to February 2019, the trust outperformed the MSCI AC World index by 1.7% and has made significant steps forward from the dark days when it was languished on a discount, prey to big US vulture funds and even bigger headlines in the UK financial press.
Baillie Gifford UK Growth was, up until June 2018, Schroder UK Growth. However, following a sustained period of underperformance, the trust’s board sacked Schroders and took the mandate to Baillie Gifford, a highly unusual step.
The trust’s new management team has taken to the task with relish, completely overhauling the portfolio by purchasing 42 new holdings and selling all but a select few of the inherited positions.
While it is still early days, the trust has outperformed the Morningstar IT UK All Companies sector over three, six and twelve months and the discount has largely stayed much narrower than it was under the previous management.
Aberdeen Diversified Income & Growth has had perhaps the most dramatic period of all the trusts discussed here. The trust – originally known as British Assets – was initially moved from the management of F&C to BlackRock, where it was rebranded BlackRock Income Strategies. But, just 18 months after making that change, the board elected to move the trust’s management again after NAV slumped 18% in that time.
Once the trust moved to Aberdeen, it was merged with Aberdeen UK Tracker Trust, with a view to increase the size of the trust, lower its cost ration and improve the liquidity of its shares.
The tumultuous changes have been reflected in the trust’s performance – it has underperformed both the FTSE World and Morningstar IT Flexible Investment sector over the last three years.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees
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