Investment trust broker Winterflood Securities has stopped recommending the Scottish Oriental Smaller Companies trust after manager First State Investment’s team reshuffle.
Earlier this year First State announced it was splitting its investment team into two – Stewart Investors and First State Stewart (FSS) Asia – and dividing its funds and trusts between the new groups.
The Scottish Oriental Smaller Companies trust is set to be managed by the FSS team, with Wee-Li Hee retained as lead manager.
But Winterflood said the overhaul, which would result in Angus Tulloch no longer having any input on the fund, meant “it is prudent not to continue to recommend the fund until the transition has been completed and bedded in”.
The broker said in spite of Ms Hee continuing as manager, supported by Scott McNab and Martin Lau, it thought “the imminent separation of FSS to be a considerable change in the management arrangements of Scottish Oriental Smaller Companies”.
The changes at First State, which the company said was to cope with “the burden of scale”, will be implemented on July 1.
Stewart Investors will be based in Edinburgh and will comprise the global emerging market, Worldwide and Sustainability fund ranges, as well as most Asia Pacific funds, including Asia Pacific Leaders.
Meanwhile, the FSS Asia team will manage mainly single-country mandates within the region, as well as the Asia Equity Leaders, Asia Select, Far East Leaders and Greater China funds.
First State said the split would not result in any changes to the investment philosophy or process on any of the funds, though it added there would not be any sharing of research between the two divisions.
Even before the reshuffle, the Scottish Oriental Smaller Companies trust was going through a disappointing period.
In the past year it delivered a return of 12.8 per cent, underperforming its benchmark – the MSCI AC Asia Pacific excluding Japan index – which rose by 30.2 per cent.
The trust has lost money for investors since former manager Susie Rippingall retired in April 2013, figures from FE Analytics show. Also, its shares recently moved to the widest discount to the net value of the trust’s assets since 2010 – falling to 11.6 per cent. The shares had traded at a premium for most of 2013.
However, in spite of its decision to stop recommending the trust, Winterflood said it would “continue to hold the manager in high regard and believe the mandate and investment approach remains attractive”.
“The fund’s discount has widened this year and undoubtedly offers some value,” the broker said. “However, the same could be said for most trusts investing in Asia.”
In spite of the trust’s recent travails, it has still outperformed in the long term. It is the best performer in the Asia Pacific excluding Japan Equities investment trust sector in the past 10 years, beating the index’s rise of 250.8 per cent with a share price total return of 454.3 per cent.
