Reflecting on thirty years in Investment Trusts

Gervais Williams explains how a three decade history with trusts has informed his thinking.

Article updated: 16 July 2019 8:00am Author: Alice Rigby

Our guest writer Alice Rigby recently spoke with stalwart of the investment trust sector; Gervais Williams to talk about how thirty years in the industry has has informed his thinking. This article "An industry icon" originally appeared on Kepler's website.

Gervais Williams is unarguably a stalwart of the investment trust landscape. Since he began his career over thirty years ago as a trainee at Throgmorton, he has worked on investment trusts – and as a result his knowledge of the structure is nigh on unrivalled in the industry.

As he says, “I learnt all about the advantages of investment trusts from the very start”.

The extent of Gervais’ fondness for the trust structure was thrown into stark relief when he moved to Miton in 2010 - “the very first thing I did when I joined Miton was set up an investment trust, the Diverse Income Trust, before setting up any open-ended funds.”

Despite Gervais’ advocacy, the death knell for investment trusts has been sounded by the industry many times over in the last couple of decades. Yet, trusts have survived – and, at times, thrived during that period. The current flourishing of trust buying among retail investors is one such phenomenon.

Why are trusts so much more resilient than the industry has them pegged for?

Gervais tells me: “trusts do evolve – they’re not the same vehicles they were 30 or 60 years ago, and as clients evolve trusts can change with them. For instance, the nature of trusts has widened considerably and in the last ten years not that many ‘regular’ equity trusts have been set up, which shows the world has moved on to some degree.”

Of course, this evolution is partly fueled by the adaptable nature of the trust structure, where mandates and managers can be changed in a relatively transparent and pain-free way. Gervais explained that this is a key appeal of trusts.

“Trusts work very well for clients. They’ve got an independent board, so if the manager doesn’t do a good job, the board will make the decision to move the trust elsewhere – which doesn’t happen in the same way with unitized vehicles – and this tends to mean they have greater longevity.”

In a conversation about investment trusts, it is inevitable that boards will come up eventually. Having managed investment trusts for over two decades, Gervais has worked with his fair share. I asked him how he views the manager-board relationship, and what he sees as the characteristics of the best boards.

“It’s important to have a collaborative relationship. Fund managers are there to generate performance for shareholders. But costs and the risks associated with debt are left for the board because they will impact the trust for the long term. So, you want a board that is informed, has a diversity of views and that is overwhelmingly interested in delivering on the clients’ agenda.”

Key to this, he says, is moving with the times. One example that Gervais cites from his own career was the case of the Gartmore Growth Fund, which introduced annual redemptions as it was being challenged repeatedly by arbitrage activity.

Ultimately, this is a measure that has been introduced by many trusts and shows, as Gervais puts it, evolution of thinking. In turn, as fund manager, Gervais has also at times pushed for the board to leverage the trust structure more creatively.

For example, he says “in 2006, we were very anxious about the economy and market valuations. We advocated to the board for the use of put options – we started off with 50%, which then rose to 100% protection in 2007 as our nervousness increased.

It was brave as put options cost money, but it means that the trust could reinvest at the bottom and also meet redemptions at the same time – and it paid off in 2009-10 as the NAV ultimately rose.”

Gervais has continued this evolutionary theme into the next phase of his investment trust career at Miton Group, where he now manages two investment trusts – Miton UK MicroCap Trust and The Diverse Income Trust.

Both trusts offer redemption mechanisms to their investors on an annual basis, which should help smooth liquidity issues.

“If we do have a build up of sellers, they can tick the box and know that their capital will be returned to them in the coming weeks or months. And new buyers equally know that there isn’t a backlog of sellers, waiting to push down the share price. And if everyone ticks the box, well then maybe the trust shouldn’t exist, and the board has an indication as to what to do.”

He adds that retail investors have been crucial to the solving the issue of liquidity in the trust world – a commonly cited criticism of the structure.

“Some retail investors take a real interest in the investment trust world – finding out about different ones and taking advantage of those on discounts etc, which I think is wonderful actually, because it’s not just about institutional shareholders, it’s about the full range of investors. The whole point about investors is that if they have different reasons for buying and time horizons, that brings liquidity, which is where trusts don’t work as well as unit trusts.”

With over twenty years of investment trust management under his belt – and more seemingly to come – Gervais is a compelling advocate of investment trusts.

As he puts it “when trusts work well and the liquidity works well, they really are fantastic vehicles to generate return”.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre as a whole.

Alice Rigby

Marketing Manager, Kepler Partners

Alice manages the production and distribution of content at Kepler Trust Intelligence, an online research hub for professional and private investors. She was previously a financial journalist at Investment Week and an investment writer at Hermes Investment Management.

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