Investment trusts with 'substantial' skin in the game

We name the investment trust directors and managers that have meaningful ‘skin in the game’.

We all want our investments to perform well, but when things get sticky and losses are sustained, there is some consolation to be had when it is not only private investors who take the rough with the smooth.

So it is refreshing to see that among Money Observer’s Rated Funds and award-winners for 2017, several investment trust directors and managers have meaningful ‘skin in the game’, which means they participate both in a trust’s fortunes and in its misfortunes.

While it would be fair to say most investment trust managers and directors have some sort of meaningful stake in the trusts under their control, stockbroker Canaccord Genuity has recently updated its list of those that have significantly more at stake (more than £1 million) than the average private investor.

Leading the pack is Lord Rothschild and his family, with shares worth £331.2 million in RIT Capital Partners, or a little under 10 per cent of its total market capitalisation. At Personal Assets, which similarly follows a wealth preservation remit, three directors have a collective £9 million invested, while investment manager Sebastian Lyon has £4.3 million riding on the fortunes of this £788 million trust. Peter Spiller, manager of Capital Gearing since its inception in 1982, has built up a stake worth £11.7 million in the £172 million trust.

But plenty of trusts pursuing an out-and-out growth strategy also have meaningful sums at stake from the people who run them. The management team behind Scottish Mortgage, for example, has £54.1 million invested in the £5 billion trust. But the clear winner in terms of a single manager putting their money where their mouth is must be Alex Darwall, who has £23.2 million riding on the success of Jupiter European Opportunities, a trust he has run for 17 years.

Other notable stakes from trust directors include Thomas Henderson’s £16.3 million holding in Syncona, Douglas McDougall’s £8.5 million interest in Monks, Harry Henderson’s £7.3 million stake in Witan, Malcolm Scott’s £3.6 million in Mid Wynd International Investment Trust, Sir Clive Thompson’s £5.4 million holding in Strategic Equity Capital and Brian Ashford-Russell’s £2.5 million wedge of Polar Capital Technology.

Canaccord Genuity calculates that a total of 61 chairmen/directors have an investment in excess of £1 million in their trusts, while 55 managers/management teams have a personal investment in excess of £1 million. And as the report’s authors point out: ‘While this is no guarantee of superior performance, in order to align interests, investors look for directors and managers to have a meaningful personal investment in the companies they direct and/or manage. This is the unequivocal view of our clients, and we strongly believe skin in the game sends a clear and powerful message to both existing and potential investors.’

Data pages explained

Share price total return (dividends are reinvested) shows how the value of a trust has risen or fallen over different periods. Net asset value (NAV) total return is a more accurate indication of performance.

Figures for capital-only returns on shares indicate whether a trust can afford to pay dividends without eroding capital.

The market capitalisation (market cap) reflects the current mid-price of each share multiplied by the number of shares in issue. However, the value of a trust’s total assets may be higher or lower than this. If the value is higher, shares trade at a discount to NAV (see below) or the trust is geared; if it is lower, the opposite is the case.

A trust’s share price is influenced by investor demand, and may be higher or lower than its NAV per share. If it’s lower, the shares trade at a discount (a negative value in the discount/premium column); if it’s higher, they trade at a premium.

We also show the 12-month range for the discount or premium, and an absolute three-month change. A positive figure means the share price has risen relative to NAV per share, and vice versa.

Gearing means a company has borrowed money to invest, with the aim of boosting returns. We show current gearing as a percentage of total assets, plus three-year high and low gearing figures. These indicate whether the manager is relatively bullish (highly geared) or bearish. However, not all boards allow their trusts to gear up.

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