Sitting down with three investment trust managers, each with over 25 years experience to hear their outlooks.
Expert insights from long-term investment trust managers
A much-touted advantage of investment trusts is their inherent structural suitability to long-term investing. As investment trusts are publicly listed, with a fixed number of shares in issue, their managers are not forced to sell assets when investors sell their shares. This means they are able to invest in opportunities that may not ‘come good’ for several years – and also those that may be harder to sell – without risking shuttering their funds, a la Woodford.
While this long-termism is appealing for investors, industry statistics suggest it also appeals to fund managers. Data from the Association of Investment Companies suggests that half of its member investment companies have had at least one of their fund managers in place for a decade or more. And almost a quarter (23%) have had the same manager for 20 years or more.
For certain asset classes, and investment styles, this long termism is particularly good news. Here, we profile three fund managers who have committed to their trusts for exceptional periods of time, at least 25 years a piece, and discuss the edge that their loyalty has given them.
Austin Forey, JPMorgan Emerging Markets Trust - 25 years
While JPMorgan Emerging Markets Trust is run with a team approach, that team has been led by Austin for a quarter of a century.
When it comes to emerging markets, the markets’ memory is especially short. Any patch of volatility (and volatility is a habitual occurrence in emerging markets) and many investors can be scared off – from a sector, a country or the whole category. Given that emerging markets incorporates everything from Brazil, perpetually billed as the next big economy and perpetually failing to live up to those expectations, to China, the world’s second-largest economy, an emerging markets investor has an almost unending list of factors to consider.
However, Austin’s experience means that he has seen more of these cycles come and go than most. He says this has made him skeptical about many of the wider claims made about emerging markets: both positive and negative. In particular, he says it is crucial to respect the cycle in emerging markets.
Austin and his team do this by investing for the long term – often across several cycles. The turnover of the three full calendar years to the end of 2018 was just 5.6%, consistent with an average holding period of almost 20 years if repeated. This approach has led to the trust outperforming its MSCI Emerging Markets Index benchmark over both five and ten years.
Job Curtis, City of London - 28 years
Job has had responsibility for City of London since 1 July 1991. At the time he took over management the dividend paid that year was 4.56p. By applying the same investment philosophy, he has managed to grow the dividend paid to investors in the last year to 18.6p, an increase of 308% and representing a compounded growth rate of 4.1% per annum.
Job has sole responsibility for CTY, although he leans on his team members in Janus Henderson’s global equity income team to help him form ideas about relative valuations and changing industry dynamics.
Fundamentally, Job aims to invest in companies that have strong balance sheets, which, in share price terms, offer a margin of safety, and have demonstrably sustainable cash generation to support both dividends and capital expenditure for the future growth of the company. As a very experienced investor, he likes to spread investments across a wide variety of companies. Historically, he has at times had a list of well in excess of 100 companies in the portfolio and as a pragmatic and experienced manager, Job instinctively sells into ‘hot’ areas of the market, recycling into less well appreciated areas – speaking again to his years of experience.
Evy Hambro, BlackRock World Mining - 26 years
While Evy has been a named manager of BlackRock World Mining for only 17 years, he has worked on the trust since its launch in 1993. This depth of experience is important, as the markets in which the trust invests are very specialist, with unique drivers – as was starkly reflected when the trust’s (more restricted) benchmark lost money in 2011-2015 as the rest of global markets soared.
Evy and the wider team’s knowledge is reflected in the trust’s investment process. BRWM uses all of the tools available to it as an investment trust to achieve its objective. In our view, this is a clear differentiator to open-ended peers as well as the few investment trusts that make up the peer group. Chief among these differentiating factors is the managers’ ability to make private royalty investments, where the fund buys access to a reliable stream of revenues (royalties).
The nuanced approach taken by the experienced team is most evident in the trust’s dividend, which is a focal point for both its board and management. Based on the historic dividend of 18p, the shares currently trade on a yield of 5.2%. The long-held thesis of the managers is that the global diversified miners will remain disciplined in terms of cap-ex and funding new projects, and that 40-60% of earnings will be paid out as dividends.
The yield of 5.2% compares very well, in our view, to other Global Equity Income trusts (average yield 3.9%) and the IA Global Equity Income sector, which currently has a median yield of 3.1% according to data from Morningstar. In fact, with a yield of 5.2%, the trust is among the very highest yielding equity trusts in the wider investment trust sector.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees