UK Edition
Last week we wrote about a global trust, Edinburgh Worldwide, that can boast an out-and-out focus on the “growth” style of investing. But we believe investors should have a balance of exposure to “growth” investing and its opposite, “value”.
So this week we’ll take another look at a global trust whose strategy is about as different from Edinburgh Worldwide’s as you could imagine: the Scottish Investment Trust.
The contrast between the two portfolios can be seen in their attitudes to technology stocks. Edinburgh Worldwide owns (according to its most recent annual report) Tesla, SpaceX and Oxford Nanopore, among others, whereas Scottish Investment Trust owns none at all.
The latter’s managers actively seek out what we might call “problem” stocks. They divide their holdings into three categories: “ugly ducklings”, “change is afoot” and “more to come” – troubled, recovering and still improving, if you like.
This approach, the epitome of value, contrarian investing, has been out of fashion for a long time, a fact reflected in the anaemic performance of the trust’s shares (a loss of 1.1pc) since we rated them a hold in January 2017.
But while share prices are at the mercy of market sentiment, which is not always well founded, profits and dividends are in the realm of hard fact – and when we look at its record in this way, Scottish IT has shone.
Analysts at Winterflood, the broker, said earlier this month: “Although income is not a focus of the investment approach the fund has a strong record of dividend growth.”
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Over the past 10 years, they added, the ordinary dividend has grown by 138pc, an annualised rate of 9pc. This has been supported by strong growth in earnings: 180pc over 10 years, or 10.9pc a year. As a result the trust has been able to pay a special dividend on top of the ordinary in each of the past five years.
The yield of 2.9pc is towards the top end of the global peer group and the trust’s substantial reserves of revenues would pay the ordinary dividend at the board’s intended level for more than three years.
In Questor’s view, share prices can remain static while dividends increase only for so long: in the end the market will acknowledge the value of a steadily rising income.
Questor says: hold
Ticker: SCIN
Share price at close: 792p
Updates: Montanaro European Smaller Companies and Tetragon Financial
Two weeks ago, when we discussed the AVI Japan Opportunity trust with Richard Curling of Jupiter, we lacked space to include his views on two other portfolios covered here previously, Montanaro European Smaller Companies and Tetragon Financial.
He said the former had performed “much better” than rival funds. “The performance differential is striking.” Mr Curling is chairman of the Montanaro trust’s board.
He described Tetragon’s discount of more than 50pc as “extraordinary”, despite the trust’s “corporate governance issues”. “It’s an interesting value opportunity, although there’s no clear catalyst to narrow the discount at present,” he added.
Questor says: hold
Ticker: MTE, TFG
Share prices at close: £11.87½, $12.20
Investment trust news
Some trusts have been affected by the takeover of Merian Global Investors by Jupiter this week. Merian’s former boss, Richard Buxton, will become lead manager of Jupiter UK Growth, replacing Steve Davies, while Merian Chrysalis will be managed by Jupiter, subject to approval by shareholders.
Henderson Opportunities is to raise its dividend by 24pc and pay divis quarterly in future. The moves are being seen as a way to sweeten investors before a “continuation” vote next month.
Hadrian’s Wall Secured Investments is to be wound up and will change its name to HWSI Realisation Fund. The changes are subject to approval by shareholders.
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