Investment Trusts 

Strategy switch boosts £940m Scottish investment trust

Strategy switch boosts £940m Scottish investment trust

The manager of the £940m Scottish investment trust said the switch to a contrarian strategy has helped turnaround the investment vehicle’s performance.

The trust’s total dividend to shareholders was up 40.6 per cent for the year ending 31 October, according to results published yesterday (4 January).

The trust also scooped up a net asset value total return of 29.4 per cent for the year, which is a marked increase from the 4 per cent return reported during the previous year.

Early in 2016, the trust had seen returns fall, which the trust’s manager Alasdair McKinnon said was partly due to the market jitters in the run-up to the Brexit vote, as well as the performance of certain holdings in the portfolio. 

He acknowledged that the kneejerk plunge in markets following the Brexit vote was chaotic, but said the portfolio made a swift recovery and quickly advanced to new highs for the year. 

Speaking to FTAdviser, Mr McKinnon – who took the reins in February 2015 – said a contrarian approach works well during times of change, adding: “Changes has a knock-on effect that isn’t obvious.” 

He used the Brexit vote as an example, saying his allocation towards unloved stocks helped him perform well during this difficult period.

“We had invested in a lot of companies where we had seen that downside protection; we don’t know when things will change but we just know the conditions are ripe for when that huge shift occurs.”

Mr McKinnon, who described this contrarian approach as his “inherent style”, said he ignores fashionable stocks and the emotions associated with a company’s past performance. 

He also explained that he allocates stocks into three categories: ‘ugly ducklings’ which are unloved shares that most investors shun; ‘change is afoot’ where companies have improved but this progress has not yet been recognised by the market; and ‘more to come’, businesses which are recognised as good but the market doesn’t appreciate the scope for further improvement.

Scottish Investment started shifting its strategy when Mr McKinnon took over in 2015, and he said this decision was largely driven by the fund market being split between low-cost passive funds and well-regarded actives managers.

Scottish investment trust has also cut its ongoing charge over the years, falling to the current price of 0.49 per cent, from 0.52 per cent in 2015, and from 0.68 per cent in 2014.

The trust’s chairman James Will said there was a recognition that costs are increasingly being looked at very carefully, but said partly this was due to changes in the trust itself.