The failure of The People’s Trust (PPLT) to raise its minimum target, as reported in last month’s issue (page 10), has presumably left the 2,400 investors who crowdfunded its launch costs looking for an alternative long term core home for their funds.
Happily, there area number of well-established trusts that have many of the key features promised by PPLT. That is to say, they offer investors one-stop access to a globally diversified portfolio currently focused mainly on equities, managed on a long-term, high-conviction basis by well-respected managers.
What is more, because these alternatives are much larger than PPLT’s launch target of £125 million, they have lower annual running costs and are better placed to influence their discounts through buybacks without becoming too small to be viable.
No manager retention
There are caveats, however. None of the alternatives share PPLT’s commitment to retain its portfolio managers and chief executive for at least seven years on the grounds that this should encourage a genuinely long-term investment policy. Nonetheless, most of their managers have demonstrated their commitment to a long-term approach, and it is hard to see why an independent board should have to retain its chief executive or fund managers if it loses confidence in them. The general complaint is that boards are too reluctant to take action.
None replicates PPLT’s commitment to invest 1 per cent initially and up to 5 per cent over time in social impact investments (via funds managed by Big Issue Investments), so if that is important to investors they must organise their exposure separately. And none have a shareholders’ committee to discuss ‘matters of interest’ such as remuneration and nominations with their boards.
But again it is questionable whether this is needed if trusts have genuinely independent boards – especially if at least some of the directors and/or managers have really meaningful stakes, such as the multi-million pound family shareholding of Witan investment trust’s chairman Harry Henderson and the million pound-plus shareholding of Andrew Bell, who has been Witan’s chief executive since 2010.
Witan is the closest well-established alternative to the People’s Trust, in that its portfolio is subcontracted to a panel of hard-to-access fund managers, all of whom deploy a high-conviction active (as opposed to passive) management approach. Adding to the similarity, they are selected with advice from Willis Towers Watson, the global multinational risk management and advisory company which PPLT planned to use – with two of Witan’s current sub-managers also earmarked by PPLT.
Witan differs significantly from PPLT in that Bell is permitted to change its fund managers or tweak its asset allocation without waiting seven years, to use modest gearing when he sees fi t, and to personally manage a specialist funds portfolio accounting for up to 10 per cent of assets in order to secure exposure to asset classes such as private equity, biotechnology or mining. In addition, Witan’s ongoing costs of 0.65per cent are well below PPLT’s projected 1.07 per cent, and it is committed to keep raising its dividends every year (having done so since 1974), whereas distributions by The People’s Trust were to be a residual consideration.
Bell has given most of Witan’s sub-managers a long run, with seven of the current 10 having been appointed between 2008 and 2013, but he has made three changes this year, in order both to lift emerging market and European exposure and to raise the trust’s active share (the degree to which its portfolio differs from its benchmark) to over 75 per cent.
Almost all Witan’s sub-managers have usefully outperformed their benchmark indices since their appointment, and Bell’s direct portfolio has also added value, as has the trust’s gearing. As a result Witan’s NAV total returns in the first seven and a half years after Bell took charge were around 165 per cent, satisfyingly ahead of the 145 per cent returns on the MSCI AC World index. Interestingly, PPLT’s target of 5 per cent a year over inflation, as measured by the Consumer Prices Index over seven years, works out at just over 160 per cent assuming average inflation of 2 per cent.
Following radical changes in March 2017, the Alliance Trust (ATST) is structurally even closer than Witan to PPLT’s proposals. Under the banner of ‘Investing for Generations’, it too has turned to Willis Towers Watson and entrusted the firm with appointing eight ‘best in class’ managers from around the world to manage its assets.
Each of those managers is expected to invest only in their best 20 ideas (which is more stringent than the 20 to 40 proposed allowance for some of PPLT’s sub-managers), with one of them also running a 50-stock specialist emerging markets mandate. Alliance Trust therefore has more sub-managers than the four or five PPLT hoped to appoint initially, allowing it to secure a stabilising mix of quality, growth and value-oriented investments; but the tighter restrictions on those managers indicates a similar overall portfolio spread of up to 200 companies.
Reasons for caution about ATST include its lack of an independent chief executive such as Andrew Bell at Witan. Instead, Willis Towers Watson is responsible for balancing risk at stock, sector and geographic level, as well as for the appointment of managers. Encouragingly, ATST’s relatively new chairman and deputy chairman have both acquired meaningful shareholdings.
Although its managers are expected to be index-agnostic, the trust’s stated overall aim is to outperform the MSCI AC World index by a minimum of 2 per cent a year net of all costs over rolling three-year periods, to help investors grow the value of their investments over the medium to long term, and to maintain its 50-year-old commitment to raising its dividends every year. It is targeting a competitive ongoing charges ratio of less than 0.65 per cent.
Canaccord Genuity is broker to ATST. Alan Brierley, who heads its investment companies research team, claims the reorganised trust provides relatively low-cost access to the best ideas of a skilled, highly focused and complementary list of global equity managers. ‘Central to this approach is a philosophy that expects leading equity managers to add most value through their highest-conviction ideas,’ he explains.
Caledonia Investments and RIT Capital Partners could also be considered by those attracted to the global funds-of-funds model, as their multi-generational outlook is underscored by the massive family shareholdings of Caledonia’s chief executive Will Wyatt and RIT Capital’s chairman, Lord Rothschild. Both offer access to a variety of asset classes managed by a mix of internal and third-party managers, and put a high priority on wealth preservation.
Alternatively, those who believe in the long-term outperformance of equities but are uncomfortable about relying too much on the flair of one or two individuals could look at JPMorgan Global Growth & Income Trust (JPGI) or Baillie Gifford’s Monks Investment Trust (MNKS).
Best global returns
The former has been managed since October 2008 by Jeroen Huysinga. He invests worldwide, with no benchmark constraints, and draws on JPMorgan’s extensive global resources, with advice from over 70 analysts with an average of 18 years’ industry experience. The result is a high-conviction portfolio of around 82 holdings and an active share of over 90 per cent. Net asset value total returns have been among the best of any global investment trust over both five and 10 years.
In July 2016 JPGI’s board undertook to payout at least 4 per cent of NAV in annual dividends, funded partly from capital when necessary so as to avoid making any adjustment to the investment team and process. As a result it currently offers a yield of over 4 per cent, paid quarterly.
Monks focuses entirely on total returns, with income a residual consideration. It has achieved encouraging results since March 2015 when the experienced team of Charles Plowden, Spencer Adair and Malcolm MacColl took charge. Drawing on ideas from across Baillie Gifford’s sizeable investment team, they have assembled a high-conviction portfolio of around 90 holdings which they expect to hold for an average of over seven years. The active share is 92 per cent.
Around half of Monk’s holdings are expected to succeed or fail on their own efforts, rather than being at the mercy of external economic developments. Several of the board have large stakes in the trust, and the management trio are all shareholders. Charles Plowden echoes The People’s Trust’s sentiments on the benefits to society of providing long term support to well-managed companies.
‘Our approach is to focus on a range of the world’s best businesses, and to hold them for several years, often through political and economic cycles and uncertainties,’ he says.
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