Dividend Outlook | Investment Trust Edge

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  • 49 mins 54 secs

In this edition we look at how well covered UK dividends are; why smaller companies trusts can produce good income growth over time; the growing role of private equity in global growth trusts and consider the outlook for Andy Brough and Jean Roche’s Schroder UK Mid Cap Growth Fund. Speaking on this panel:

  • Simon Moore, Director, Trust Research
  • Ryan Hughes, Head of Active Portfolios, AJ Bell
  • Alex Moore, Head of Collectives Research, Rathbones

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Hello. Welcome to investment Trust EJ with me, Mark or get as ever, we're looking at three crucial topics for closed end fund investors on. We've got a panel to discuss them. Let's meet the members off that panel. They are Simon Moore. He's director of trust research. Ryan Hughes, head of Active Portfolios, A. J on Alex More head of Collectors research at breakfast. Our first topic today is having a look at investment trust as a source of income, particularly the source of growing income. Sinem taking a step back from that first supposed to have growing income there's gonna be underlying dividend growth in the market. So what's your outlook for dividend growth? At the moment, we've had some pretty companies need tohave revenues on growing revenues with corporate structure, which means selling more widgets or drugs around the world. And then they met. Once they've got their gate, their level of revenues, they can set their level of dividends. And I think what's happened on us of sector basis. A lot of companies corporate setting, their level of dividends, predator to yields bass eels in the past, and nobody quite likes to be the 1st 1 to cut their different. They don't need to be paying 4% yields when base rates of where they are. So maybe there's there's a thought that actually yields the company's paying is too, huh? So that's a potentially a bit of a flag there. Ryan, from your point in particular, was one part of yield is share prices might be low. Rob payout So high Here we are in the UK and Brexit two more that can't be helping this. Not for the capital value of stocks, certainly not helping the Capital Valley of Stocks, but it, actually, artificially. Perhaps some of those years do delivery high, so you might be under lock in an attractive income for the long term today, providing you don't get those cuts, and they they're able to sell those widgets and those things around the world. But also then, looking at that thinking about the cuts is also thinking about dividend cover around. And actually, dividend cover in the Foot's 100 is running around a five year high, which might be counterintuitive, given people might see the economy struggling a little bit. But actually company cash levels, particularly in those larger companies looks okay today, which might mean that sustainable dividend and dividend growth for the long run is actually fairly well underpinned. Annex. We talked about the market in the round, but there must be some parts the market where dividends dividend cover look more attractive than others. So where are your concerns, where the places you're more relaxed when it comes to dividends? I mean, when it comes to dividends in particular, you care at the moment, I think, in particular larger cap space, as we mentioned earlier. It's a narrow we take some comfort in, I think at the moment, given that because of Brexit sentiments in the way currencies moving at the moment, most of the 5100 are overseas owners and therefore that actually does provide a fair amounts of coverage for the dividends. It means that we when it comes to translating overseas earnings into sterling, therefore, we get more comfort there without that sort of larger cap space of the market. I think within the smaller companies space, it's an interesting dynamic because given that a lot of the earnings from smaller companies are UK domestic and you case of orientated, we wouldn't want to say that in the short term they're under stress. But given that you want to take a view that sterling is a relatively cheap level, at the moment could provide an interesting opportunity for long term investors seeking income from the smaller into the market. Run you mentioned David and cover rule of thumb. What's a good level of dividend cover? I think in an ideal world we'd have dividend cover of two. But I think those days, perhaps there are a little bit beyond really a level of about 1.7 today of the of the foot 100. But obviously that's a very broad spread, with some companies down at one on, probably holding their dividend on those that do have a a greater level of cover on. We're seeing some corporate challenges, and at the moment, some of those companies not able to raise their dividend because having to restructure the business. So it does mean, I think very careful stock picking might become key if you want to be able to grow your dividend over time. When you mentioned dividend cover cover of two times, what does that mean? You put a pound of dividends. You had £2. You could have paid out exactly right? Exactly right. And I'm just picking up on that mean we've seen with things like Thomas Cook being in trouble that one issues that had a huge amount of debt. Look at the dividend cover, but there's a lot of dead out there, and companies have to pay there bankers and their creditors back before they pay the shareholders you were today. Yes, that is a very important way. But if you take a step back also, the banks and general have been less keen to lend to companies when they're sorting out their own banksbalance sheets. So companies started having to look for sources of new money to investors. Why should I? Us is a new investor. Give the company money. What's our return? They was encouraging them to pay dividends to investors to make sure that a source of capital they have shelled us to give them money when they needed as well as the bank. So I can see that there's a balancing the corporal's trying to do with keeping the banks and their coupons and the bank loans happy, but also rewarding and encourage investors for when they need you to go out and raise money from the markets were given this backdrop. What are some of strategy? Is that you? You look equity income trusts. You're seeing the pursuing, Alex. How about some of the equity? Come on. It is negotiating this in many ways. I mean, actually, it's interesting when you talkto income managers. You've got to understand whether the trust is trying pursue dividend yield or dividend growth. Because actually, those two, when you're looking at a company with that sort of mindset, the attributes you are looking for a very difference. Some of the more dividend growing ideas out there are making sure that leverages low free cash flow is high and be able to demonstrate that company. Can you are you on your compound and grow its income? And therefore you're looking at more sort of quality characteristics. That's not say that's a dividend yielding company shouldn't also exhibit those characteristics, but you could, Perhaps, if you're a fund manager looking at the high yielding company, you're probably wanting sons. And how sustainable that says in the past, whenever a company has traded on a above average market, yields that sometimes a warning sign that the market doesn't actually have faith of that company can sustain that dividend. So you've got to understand of the fund managers looking at sort of quality fundamentals that growth income growth manager would look at then perhaps provided marry. That's up somewhat in terms of OK is that high level of yield sustainable as well. So it is very different, depending on what structure you're looking at. Someone is there, you mentioned earlier. There's a danger that companies don't like cutting that dividends. Is there a danger that investment trust themselves were cut dividends? We've got the air, sees diffident heroes, which is that there's trust that are growing. Their dividend every year puts pressure on people to keep it up on. I can see that if they want to maintain that status, which is it's a nice of brand that the city had come up with. And there will be a lot pressure himto not just maintain, but they've got to increase. You can't just have a couple of years of stable dividends. Otherwise you will drop out of the dividend hero's table so that yes, there will be pressure to increase their violent, particularly in inflationary environment. You could imagine actually a dividend set level or only growing marginally is not. It's not as attractive as David, which is growing in line award in inflation and run. You mentioned as well only about buying into the UK equity market. If share prices low, you're looking into that income quite cheaply. You think I've been doing some work on A J. Bell Hands on, essentially not looking at current yield today. Share price with what said the yield has been. The income has been over the last 12 months, but if you bought a share, say, 10 years ago and then saw the different wars today, so he talks through how that you started looking yield to original cost of purchase versus current yield. What's the difference that makes Yeah, I think what it really is focusing on is thinking about the importance of long term investing on the power of compounding over time, which everyone obviously we're very well known about about compounding, but the ability to lock in that growing income over time. And if we look back on a 10 year view, they're naturally that the yield you're getting today could easily be as much as 10% yield per annum based on your original investment. But the important there is locking in investing in a low level of the market on the ability to think long term on hold on, hold the investment through time. And clearly we see too many investors that they're holding periods are actually shortening, not lengthening, so they won't benefit from that. So you've got to think long term, but that the long term power of that compounding as we know it's so so powerful on actually interesting. Looking at the statistics where it's been really powerful, is in a lot of smaller companies trust and not necessarily those that are focused on income is very easy. T focus in on those income payers, but actually plenty of years out there for strategies that aren't focused on paying an income and also those trusted still actually increasing your dividend year on year as well. Well, we've got a table. Let's bring bring that up now and have a look at that. But I mean, I think so. To your point there, you've got someone like Henderson smaller companies. If you bought in 2009 then looked at what the of income coming off. The trust was in 2018 that would be equivalent to an 11% yield, compared to a 2.6% yield. A few looked at what 2018 year was on the 2019 right? So that just making that point. But what a small companies in particular, why are they the ones that produce this is growth? Well, I think that this element that's the starting yield is very often lower. Eso you've got scoped to grow to grow into administration Looking at the data bmo Global Smaller companies, so not an income yielding trusted has got 49 years of dividend increases. So the ability for these companies tow give some of their profits back to their investors, particularly small companies. Grow office. You got to get stop picking right is very, very attractive. But you're not hampered by that very high starting level of of income on trying to grow that grow that over time. So I think again, long term investing absolutely key there. But even something like FNC. Dear old FNC. There 10 years, 10 year yield. If you invested 10 years ago. Today you're yielding well over 4%. It is still a very, very attractive little. But Alex, looking at numbers like this, is that these could be slightly illusory because 2009 we were right at the bottom of the stock market. So, in a sense of you ever going to make the case that we're discussing a moment 2009 is probably a very good time to have your start date. Exactly how impressive would Because you might not probably not crunch numbers, but would it look as impressive if we'd say, pick 2011 as our start date? Pick six or seven years from them? Well, probably. But that's also because over the longer term, smaller companies do tend to outperform large caps, and therefore, when you're looking at total returns, then you would expect see a higher proportion of that return come from capital. Also, you mean the's trust also have the advantage of gearing. So therefore, you know, if you were to buy a nun geared smaller company, you're going to get a low yield. So there's there's there is that aspect to it. I mean, yes, if you start when you're in your data mining. You gotta be mindful about your starting point, but I would say for the smaller company investing, but you don't tend to buy that for the income. But obviously it's a nice bones tohave. You gotta be on mindful as well about how these dividend increases have how they've been able to materialize. Is it the case that these trust have just had revenue reserves in the bank for a long period of time? And they're ableto smooth out that distribution? Are they using other strategies such a CZ option, right? Sing something which is not unheard off and of a magic and demonstrate good skill there. Then that's also very income. A creative on one aspect as well, which I know a lot of ideas do uses a kind of employee discount control mechanism, is actually paying income through capital, which is something which, you know, as a investor you gotta be mindful off. You gotta understand what the pros and cons are, but there are so different ways in which you can generate yield from from an asset that's a stocking, more growth so back to the angel's underlying corporate CE. But some of the small company mentioned paying dividends, not paying dividends. 11 school for which I should hide here too is that if you if you are looking at all comfortable company in same sector companies which are paying dividends tend to be better run the ones that just going for growth. And if it gives us a easy check, Is this company Wellman for long term for investors paying a dividend, your novel sort of safety net, if you like. That being said is that CEOs often have an earnings target every quarter and they miss it well, but they've got a dividend target. They're gonna make that diffident Argus. It makes them really focus on running the company better. So is that the theory behind that? That if a company puts herself under a little bit of pressure on the cash front, it has to think smarter? Well, I visited the down the CEO and the financial team, but they got a little something to aim for which they very likely unlikely to change. Its a better a better target for the rest of the company along into. And this just spend this now from the markets and investment trust themselves to end investors run. A lot of people are quite concerned about the level of markets. For various reasons. It's been it's been a long run. If your income investor do, What advice do you give people? Is it just by the right trusts? And don't worry about the capital value? Whatever happens, just you know, if you need income, get yourself a good provider of income on the capital will sort itself out over overtime. Yeah, if you need income, a good starting point to focus on those trusted have got that long that long track record because they won't want to cut that income they won't want. For now. If those dividend heroes I think you've got there's not not a safety net. But you can invest in some level of confidence that the managers will look to increasing evidence chemicals. They look at things like the revenue reserve there and see how much they've got hold held back to help them in those times. A swell, but things very easy to be worried about. Markets were battered by problems and issues around the world, particularly politics all of the time. I think it's important to remember that you're investing in companies companies are delivering. Service is selling products, growing capital, paying out dividends. I'm regardless of what happens in Parliament or in the White House, these things really carry on. Carry on going. But think long term. Be patient on Do your research on Alex. If you're putting a portfolio together for a nen come seeking investor, how much do you put in trust that a paying income today. So this you said the ones that are set up for Depends on how much do you think I should have some of this portfolio in long term growth? Because show this is a client who could still be wanting in come in 2025 years time. And it's an interesting one. And it really does depend on what your kind sir appetite is for risk. I mean, if you're if you are primarily focused on income, then it should be survey a larger heart of your portfolio because you got to remember as well. These are growth assets, but they are paying income and so forth, so therefore you will get some pizza from urine campaign parts of the portfolio. So I would say no. Without given exact numbers, it should be, you know, it should be perhaps a relatively larger proportion compared to yours of the growth are aspect. But don't be. Don't kind of lose focus on the fact that these are equities still, and therefore there will be some volatility in the capital growth. The point we checked your table shows is that you could get income, not just from the UK. Yeah, the point when you're building portfolios with clients trade your rental income is one of one's to mention your table. It's not just a U. K. What is the pay dividends? Private equity? There's more and more of it about in investment trusts, not just private equity trust themselves, but mainstream vehicles adding sleeves of private equity. And so are the rules of the underlying assumptions we will make when we buy investment trust beginning to change. Ryan, What's your take on that? Because there's people like Scottish mortgages, people, FNC, investment Trust. They're all beginning to put private equity in there. Some of them were doing for a while. Yeah, this is actually I think, being around longer than a lot of people realize, and many investors out there in the big investment trust on the two you mention will have had exposure to private equity. Perhaps they've never even realized it. FNC, probably going back 15 years, made its first allocations to private equity and in quite a meaningful way. And that over time, when you look at the returns, has been very creative to real performance. So it's being happening. I mean, sometimes it gets a little bit of bad press, but it's there in the mainstream. And now we're seeing perhaps IAM re emergence of some specialist vehicles for private equity as well. So actually, it's quite a wide range of options for people. Now they want exposure to this area. On balance is a good thing, I think so. I think if you look at the general trend, fewer companies are coming to market these days. Listings are less popular on. Therefore, if you want your fund managers, your trust have the widest possible opportunity set. Maybe you do need to look away from the main listed markets and look into the unlisted private equity space to get potentially some very interesting businesses. Alex, we're picking up on that. What? Why? Why more Cos no listing. I think there's a number of reasons that I think first of all, some of these companies I mean, how they've evolved over time don't actually require a public listing. The availability of private capital out there is pretty large. Even when you look at some more traditional private equity vehicles, there's more Cashmore liquidity being held there. Held back Thio buy into new companies and there has been for a very long time. So you got a huge amount of capital already there on. You know, you don't have to put yourself on the market and therefore have to conform or do the regulator re announcements that's required of it. It's actually quite easy to raise capital without having to come to market a lot of these companies as well they're very different in sort of what they're doing as well. Listen very capital lights that knows capital intensive or asset intensive, and therefore they can survive longer without being private than without being listed and something that a worry of cos I just want to do with the regulations, public markets. I mean, how what does that syrup in terms of corporate governance and your percentage chance of backing the wrong one. Um, so that that depends. If you give your money to a fund manager to invest in your behalf, they should be doing all that talking about being on the underlying cos when you've got investing with a private company, you actually have the whole book open to you as an investor. So you can't you see a ll the details of all that, what the company's doing, which factors they're opening or closing you get. You get much more due diligence on your investment. So you're thinking about the impact that you're making the fund manager the investor. You should be able to make much greater impact in control on a private company, which which you owe. If you have 100 center, it's actually it's actually more transparency. A CZ investor, you have more rather than just course Nelly data every have the same information. On every quarter. You'll have the books from the from CEOs vanished a long time, but this is a very different skill set investing in private equity from public markets. It depends. That's hyper private equity company you're looking at. It depends on how advanced they are in terms of whether they're earning revenues are not a company like baby gift fiddle mirror. And they will argue the case that the type of companies they look for already very well established their owning revenues. They have enterprise values which are really consider be large, and they're probably at the They're probably closer to coming to markets than and they were previous years. So therefore, making assessments of value by just pouring over company data is quite often say is easy. But it's probably not probably easier compared to a very early stage company, which isn't generating any revenues and could be based on an idea or could be very heavily lost, making things up. The actual operational aspect is the one that's, And as an analyst, we'd be honing on, honing in on more. You're not buying a share so therefore so, actually, gain exposure to these companies requires more due diligence Maur toe input from legal expertise where that be internal or external, so in terms of sort of how we would approach it, it's not just how you analyze the company, but it's also what kind of infrastructure do you have as a fund house to actually place Lace Dale's. If there's a vest intercept that would for a patient capital in terms of where that is on the on, the scale of investing into private equity is that is that early stage rather than sort of later part of the cycle that Alex is talking about? I just wanna get some field for the risk reward where that is. It's all of these. That's victory when we look at it. A lot of those companies early stage and a lot of those companies are focused in the pharmaceutical area arguably have a binary outcome on that. That's very, very different to investing in private equity, where you're investing in perhaps very large. Companies that would, if they were listed, would have large market caps are run with a board structure that operates like a listed company. Already files reporting accounts publicly like a listed company, so that not all unlisted companies are equal. And it's very important if you're looking at a variety of trust that you understand the area of focus that they have on the risks that come with it, and investing in those early stage binary outcomes is clearly a very different respond file to investing in large, developed, well established companies that have just chosen not to list. So when you look Simon, it say, the n a V of the Foreign Clara Investment Trust, or Scottish mortgage, which I think has got about 20 just over 20% private equity, you're very confident. That's the true n a V. That's not that's just science. Rather than getting into how do you value an unlisted holding on? And typically, it's about the last funding round that holding Intuit's you value to the last funding round. But the other side is a zoo. A check on that. Is that what are listed comparables like? So a company in the same space but listed? How does that trade was its revenue growth and what it's P ratio. So if they both those forms a line, then then there's more confidence to the envy of The honest company is more like it to be true, but it's it's It's only a bit of a fashion of the monks, asset managers and investment trusts for real assets and diversification. If you you say that it's like yourself a tech stock in the late nineties. Everybody magically likes you. Do. Do you worry that there is that Perhaps the industry in this hunt for diversification isn't always buying into things. It knows what it's doing. I don't want Thio. I'm hoping that anybody who's considering making investments in anything, that sort of alternative is obviously doing their due diligence and therefore understanding what the drivers of return are when we come to things like private equity. I always assumed that given the name equity is in name, that this would be part of your growth aspect of your portfolio. But understanding that just because you know nabs are struck, call to the or periodically and not on a you can't value something day like you can equity. That's just because something may look a cz a low, volatile asset, you know, sort of risk asset. You would also consider aspect, such as What's the risk of permanent loss of capital? How are these things correlated to the rest of my equities In the rest of my portfolio? I do think that there was growing appetite for Maur diversifying assets, and if there's anything is generating a yield even better that I would assume that given some how early stage or say how new song, these ideas, that investors are paying a lot of attention to what those drivers a return our and more crucially, what those drivers of risk are as well run. But what would you say? The differences between true diversification on an asset has just gotten elected price. Yeah, uh, I think that probably the slightly flippant answer is you'll find out. You'll find out whether you've got the diversification when the price moves, you just you just don't know. I mean, yes, there is that there is a lack price, and clearly they can gap up or down. And we've seen that with various trusts over over the last the last few years and certainly this year. So I think you need to treat carefully. But I think that's also important and think about the right structure and investment. Trust structure is clearly for me the right structure. It makes people think long term enables the manager's buying these underlying assets to invest in a long term view. On also, if you think about three I, for example, I mean it's got exposure to Belfast Airport. How do you do that court debate. It's very, very difficult to do that. Anglian water. Use the example of comparable sentences as well. This comparable sector quite nicely for that. But perhaps there isn't for for an airport. Thes businesses are all very, very different. You need to be careful, and I think you actually have to expect the price to get up or down when the Navy gets re struck. Presumably, a lot of what the price is going to be is whether people have got a short term view on what they want to do with the investment or a longer term view. You think this is the price of liquidity? Well, that's why I think we mentioned would for coining patient capital is actually quite a good thing. Yeah, that regardless of what happened to the trust, people have got to have invest in this for the long term. I think the functional now it's trying to encourage patients investing as well. They will eventually, inevitably be some correlations with markets. If you're invested in companies that likewise try to sell widgets to the same place listed companies trying to do one thing, you should look at it also with share register and, if they were the same share register. Same similar. So shareholders they might well turn sell the same plan for some other reasons as allocation calls. Or as it was going on my bench with Till these for the Williamson premier merging going on me that they're they're Bilis has to change on dhe. They become service. That could be a correlation of without. That's his aunt correlated with Sheffield is up on day, Alex Newell view is, Is it the closed in structure? If you are interested, Private equity, the right one to be. And I mean, I think you will be watching Very gifted earlier. I think they don't hold any of these private equity holdings in there. Open ended funds are talking. There's a rule in closed in on for most most clients. For most people, buying open ended private is too difficult anyway, because you need to commit huge amounts of money. You're locked in for long periods of time, and you may be asked to actually top up your investments if there are calls for most of our clients, the investment trust structure is the most appropriate, and that's not just because you can get your money in and out where there's liquidity, but also just in terms of the lower denominations, which for an open ended investor is just too challenging for most of our clients. And where are we in the private equity cycle moment? Well, if you think about when would you want to invest in companies, is when the companies are trading cheaply on, then you private investor would sell them on when they're trading more expensive. So peas and markets are quite expensive. It's been quite a long cycle cos quite mature, Private recommended. I speak to think it's better now to be selling than buying. But that being said, some of the fund of funds in particular are able to buy multiple secondary private equity funds, which you can buy. It meant that much mature closer to exits or even co investing in the directly into the company themselves. It's end of the cycle, but if you pick the right house, you can actually bank. There's always opportunities. But what? Something like three ill is that a premium rate discount? I think it's on a massive. It's never not been on discount, just average. I mean Why Why is that? Is that because it's It's the establishing of blue chip private equity, so there's natural demand for it? Well, I think also the it appeals to global investors on many investors looking as financials off the investment company called Investment Trust think it would be. A lot of people wouldn't touch it, but being covered by financials on lists. It's got global appeal. Flip this on the side. If there's so much potential in private equity, why bother with quite inequities anymore, Alex? Is there a danger that you know, thes Airil companies that have had their exciting growth phase, that people who got going of use that stock markets to take? You know, stock market listing is a reason to get their money out, rather to invest more. Can I just Why bother generally were private equity. These are earlier stage companies, and therefore we put money to work there. You are gaining exposure early stages, but therefore higher risk, but high returning from a great perspective. If you're somebody as we talked about earlier, is seeking income, these is in order an appropriate vehicle in that fool. You know, they were just depending on What's your return? Ichi targets on how you want to achieve those public equities can serve a purpose, but also that there was smaller companies. That's a listed that can achieve comparable growth to private equity, as we mentioned earlier. At some, companies are staying private for longer and therefore they can be comparable on public entities can be a source of growth. As we said earlier, depending on what you were, a return requirements on what your appetite is for risk. They conserve your transport phase in many different ways. But you would see we're not undergoing a massive change in the way that capital is allocated. A private equity might be growing, but we're not seeing a structural shift, too. Private companies being a much, you know, fundamentally dominating the equity market in public, just being, you know, be the poor relation. Not so I'm not saying that, so I think. But I think it is interesting that investors arm, or where or what the opportunities are like in private equity more than ever before on dhe the opportunity again, exposure to those bar investment trust is now, as we mentioned earlier there more prevalent. So I think people that messages is just more wise and more where what? The agencies are a final thought on this Ryan. What did you get? A sense of what the regulators attitude is. If there's more private equity out that particular fire things like platforms, it's available in investment trusts. Do they have concerns? Yeah, the information disclosure is key, and the FCC has been doing a whole piece of work on liquidity long before. Woodford issues rid their head this year and has been various papers out about how illiquid assets need to be much clearer in the way they communicate thio to investors. So I think that there's something there they're focused on again with the investment trust structure. It's it's slightly less of an issue because you've got secondly market liquidity, hopefully most of the time. But it's certainly a bigger issue where they've been focused on on the open ended side. But it's something that's very, very aware off when we haven't actually seen the final paper on liquidity, which was due out, I think late summer. So maybe it's been quit. Maybe it's been held back so refreshed post the issues that we've seen over the summer. Now I'm not final part of program. I want to move on to looking at an investment trust in this case, the Schroeder UK Growth Fund. This'd trust that's been going since I think 2003 launch with Andy Breath at the helm. Very well known manager. I'm just a starting point. What's the footsie? Mid 2 50? Is that a relevant universe to be investing in festival? Absolutely, absolutely. And if you're investor and you're looking for opportunities for growth 50 to 50 as an index can provide that you know, there's a stark contrast between some of the names in the large cap space, which are larger, more overseas. Earning names very well established 50 to 50 may capture some of those names who for announced the footsie one hundreds, But also you're capturing a broader spectrum of market caps, which goes from the smaller senses of just on the cusp of the 3100. It's an index which can provide growth, but also, you know, the focus for now is also how much of the of these companies are UK domestic orientated verses international, especially as we mentioned. Given what's happened with Brexit, how currency is reacting. It's certainly something that investors should know overlook. So it's got quite an international earnings basis. Actually, has more international investors realize? I think the 1st 100 has around sort of maybe about 20 to 25% in UK earnings. Earning companies footsie to 50 is much larger than that. But that's not to say that it hasn't got a broad spectrum of international earners. I think Pat's roughly half the 52 fifties if you took all the earnings from the company's about half of our overseas. So even though it's more domestically orientated, that doesn't mean there isn't opportunities for more international names in there, too. Is it a wide enough universe to investigate? I mean, this is a trust that's got a benchmark of footsie to fist of the ex investment trusts. There's about 40 to 50 investment trusts in that new 50 so suddenly you're picking a portfolio out of 200 stocks. Yeah, it is narrow and perhaps don't get the same breath of sector exposure and industry exposure as well. They're so I think you are certainly picking from a narrow universe. I think it's interesting when you look at the market. There's actually very few midcaps trusts there. For me, it feels like the MidCap, as a dedicated investment with something that people were talking about more than a decade ago, is we must have an allocation to mid cap. And actually, in the last decade, it seems to have moved towards much more of a multi cap type structure where people have focused where they do want some opportunity in large captain, that managers much more flexible. So it is a tight universe. It is challenging. I think we've seen with performance of this area is challenging for some trust consistently outperformers as well on it feels just like a little bit of fashion may have just moved on a little bit as well. In the last few years, my memory of women captures for being launched. Someone was. It was, you know, this is this is the good stuff from small cap moving its way up. If you're feeling depressed, you could say this is the bad stuff from the gutsy 100 over now you know. I mean MNS is just had. I don't know what what its future is going to be, but it's probably no thrusting, dynamic growth stock right now. What was it in terms of the 200 or so names that that the equity names that the buffer team would pick? I think that the sector diversity is more abroad than actually 4100. So, in terms of source of what moves the 4100 years of we've talked about before, is it what's going on international space? And do investors like the UK or not international vessel in the UK or not? What moves the 40 to 50 stock? There's much more variety in sectors in there doing different things on growth rather than what's going on in oil or banks. Okay, well, that's a bit of background. Let's have a look at the trust. Now. I pull up, pull up a tape which has got some of the open ended funds I could find covering the footsie to 50 annals. So the investment trust, which is essentially from J. P. Morgan and trade. Um, run. What would you say this shorty, You came a cap. Trust has to offer that you couldn't get it open ended Fund. Is that how that structure help it? Yeah, certainly the structures. They're giving it all the advantages. That investment trust structure has the ability of the manager to invest long term, to not worry about flow from the underlying investor to be able to use, to use gearing, if appropriate, so that trust structure has the flexibility to use it. And if we look on very long term basis of this trust has has lacked some of its peers in the open ended space. Quite significantly, it's five years. Yeah, certainly. And if we look right back over from its from its inception, it's had various burst of very strong performance on then. It's had periods where it's been a little bit in the wilderness, so it hasn't had that level of consistency that perhaps we would like to see from the trust. But absolutely, the structure is there to make good use off the long term nature and ability to invest. It's just a pity it's It's perhaps a little bit of a struggle at various points. What's your take is, I think Breath bones, according to the annual report account, set off the trust for about 4.9, almost 5% of it on dhe. Since interesting is actually within midcaps. We talk about breath of sector allocation. We've talked about investment styles, whether be sort of value growth momentum you've seen over the last five years that this fun star has pretty much been out of favor because some of the higher rated names in the footsie to 50 or even miss and smaller companies have been the best performers. So thinking about stock that would be held in some of the other investment trust peers such as JD Sports, which has been very strong former because of its rating, this fund would probably not hold. So therefore, you can't ignore the style when it comes to sort of understanding that that could give us a lot of information about why trust has underperformed white and we we could we could still Kate, to take comfort your comfort from that. If you know if it's still consistent, we would always try and get an annual updates with managers like handy when when we are holders and given that this is ah, fun style that focuses much more on cash, my generation and dividends, it's going to PAP sons perform period on style. But it's but considering its consistency is probably something we could probably take more comfort from. So in a sense, it was a growth trust. It's the fact it's growth at a reasonable price, which has no been reward. It's the at reasonable price. But that hasn't been rewarded in the last three years. Sure unnatural you can. When you read the annual reports that comes across very clearly. It probably helps you know my position where we can size them up against other investment trust in the open ended peer group that you can see that quite clearly. A swell, Yeah, I think the last interim report that Jim was pointing out that the E putting out this growing underlying dividends coming off their investments is evidence of that strength of portfolio. Um, in terms of your preview mentioned, we mentioned Andy profits with Manager that they bought interesting. This succession planning has been there for a while. They bought Jean Roadshow owners, approaches a zoo manager on it. How do you think they're handling that? Think it's It's very sensible having hand of a strategy on having us with two or three overlap. So the new manager eyes where the style in the process and what the outgoing retiring manager look. Foreign stocks, but also that keeps investors on slide as well. To the incoming manager gets to know the shareholders investors and gets introduced gradually as a co manager and then does more with 1 to 1 meetings. And I think that you've seen that in many of the professional houses they've got large, large teams, large teams of managers. They have a way of actually promoting either in house or buying in externally and then having to sit by side by side by two or three years given run that here in the UK, we're having all sorts of fun and games with Brexit that just keep running. Running to what extent is a trust like this of mandate like this. A riel play ultimately, that we get a a soft Brexit. If we do that, UK midcaps will will rally if we don't have a much Valium or yeah, there's only one way that share prices ago, consciousness could look very dated depending on the outcome of Brexit is and breaks. It is a process rather than because even if we leave on the 31st we're gonna have to start negotiating with Europe again anyway. So the game starts so I don't want you, eh? Political punch, Short term political pundit I think we've all realize there's no value in that game in the last in the last couple years. I think it comes back to thinking about that international UK exposure on Dhe. Clearly, so many people are saying that the UK market as a whole is undervalued on that there should be some attractive assets. Their people was interesting practice, perhaps a little bit of bid activity. Pickup is well in the market from overseas investors there, so I think it is a is a Maura play on on domestic the U. K. And then we get a a logical, sensible outcome. T Brexit on that could easily provide quite a quite a boost to the underlying assets in the mid cap space. When we get some clarity of, let's be honest in the market just wants clarity one way or the other. I mean, it's it wants uncertainty as to what's happening on DDE. That certainty should provide some kind of underpinning value thio a lot of these equities with investment trust as well that sentiment is also being reflected in the discounts. The smaller company funds and even larger capsule of UK income, or sort of the more genetic generic you Katie Messing trust are trading on discounts or wider discounts on average. And say, if you want to have a gaijin sentiment, even though this is an example of a trust where because the appetite for that market cap space is not quite as poppers at once wars or investors of waiting for more clarity gods What's happened to the Bretton Brexit process? You know, in an event where you have a Brexit situation which is deemed to be positive, you could see that discount marriage. So you get the benefits of a re rating and underlying and have improvements as well. So it's easy to say. Be different from the crowd is there is a theory. But when it's your money and crowd, the crowd's not buying it. You Yeah, it could be quite brave. Yeah, one thing you touched on earlier there also is the idea of momentum. Yeah, and, you know, not just got to see that actually, underlying company starting something more idiots. They've got to be rated but also in terms of the showed of portfolio. It's got to be that momentum has got to stop working. People still buying. The stocks are going up. They're going to care and buy those stocks, and his stocks are gonna, unfortunately still language. So I don't know when that would change. It seems to be more the managers I speak to, they adding, or their risk team timeto adds momentum to their strategy, which actually going to fuel Maur buying of the same stock. So everybody else is buying well in terms of just bringing back t trust in the structure of it. What they dio. One element you could do with investment. Rusty's hearing. So, Alex, What's what's Andy brought from teams? Attitude to gearing? Is that something that he's a big Faneuil for more of a pure stock picker? I mean, looking over the years, it seems like compared to some of its peers, it's not using gearing. No, I'm not. I'm not using gearing until there's certainly moments over the years where gearing has been in the so the low single digits. But it's not unusual for someone. There appears to be going higher than that especially sort of the high single digits or low teens. So to my mind, your senior manager that's using doing very conservatively, maybe you can read into that. Maybe that's a reflection off their their sentiment towards evaluations in the market over the years. Or that's just a output of their investment process. We have seen the number of trust who when when things are they going to be stretched, all the opportunity set isn't there. They can be very aggressive in turning gearing off very quickly. But with that, obviously, if you're gonna turn giving off very sharply, that involves selling your underlying assets as well to raise cash. So I see of funds here, and I see a manager who has a very cautious approach to gearing and although will be using it tactically or when they thinks opportunistically over the last five years or so, it's not been quite a stock appears again looking better reporting accounts. I think September 2009 had net cash if 2.6% that's you were saying earlier about using investment structure. Do you think it's just not his style or yeah, it is interesting. I think it does probably come back to a level of caution or around the market at the moment, but also when we talked to other trust managers there wanting to lock into structurally low interest rates and on be able t really use the gearing to boost long term returns. So I think, on balance, if we looked at where rates were, would we like to see? Probably trust use that that gearing big long term returns, yes, but if they're nervous on market and can't find opportunity and you're worried, I think it's more, I think the case of being able to have more flexibility in the gearing on be able to use it when you when you have conviction. But yeah, other trust we could talk about another day are very much locking in 20 years, gearing structures with interest rates around to set it. So there. That's a very different but making use of love. Low interest rates to boost returns when equities air yielding maybe 4%. So you're talking about sort of reading? Report counts more, you could get them reporting counts, and the gearing is they figure you can see a morning stole the I see it's a static figure. But from the reporter Cassie, you can see how actively they do change their gearing and looking for this particular one. The chairman's stay there over the previous year. Full year, they renew their their revolving credit facility. They held cash half percent only at the beginning of the year, 4% of the end of the they actively using the credit facility again. That shows the board and the manager working hand in hand and actually flexing all the time, which is a good sign. They're working well rather than way. Have a fixed level gearing, will touch it or we know no giving it all, in which case we may still be alive. Bring invention of boredom would have moved on to the boat. What's a job are they doing? Alex is you have a look at the moment. The board overseas trust, it's that they're responsible for it. You take a little of that and you know that boards of investment trusts had no difference of boards of investment of regular companies were concerned. They are acting the best interest of shareholders. They are. They are beds, not just a price for managers, but they also there to approach us as investors to talk about issues or concerns that we may be having with funds. They're there to ensure sort of good governance. From my perspective, you know, I quite enjoy meeting boards of investment trusts because actually, it gives me an idea of sort of what they're about, how they're thinking of maybe evolving a strategy, or it gives me an opportunity to sort of even vent frustrations or share a manager of praise. So they are their primary to act in the best interest of shareholders, absolutely, But also they are there to ensure that the fund managers are no only performing well, but they're also acting within the remit they've been given. But on balance, stupid. Do you think they're doing that? I'm coming from the Congress on the conversations that we've been having. I think I think they do. There will probably somewhere if we feel that they aren't listening to us. So we're not so we're not being not taken on board what we're saying now. We can do things such as ours and shareholders as when it comes to a GM votes or or shareholder voting. We can always challenge boards in that manner. I mean, look, look at the feet of the last 10 years. They seem to be falling fairly steadily, which is, you know, I guess if you could get from manage down into a lower fee, that's that's a good thing for shareholders there. They don't seem very keen on buying back shares. I don't know what your take is on. Yeah, I think that you would need to be careful not to retire too much equity trust is a 200 million. It's not huge and the danger that you retire too much equity. Actually, you put people off buying the trust and it ends up shrinking and on withering away. So I think that's something I need to be careful with the trust of this size. The moment it was a lot bigger, I think, a very different conversation, but 200 million. I think it would be right to be cautious with it with a buyback policy and so finally I mean quite a mix of shareholders. Bart is with Williamson. Lloyds Bank. Johnston wrath bones Down in life Aberdeen is quite a a range of professional investors in there, so this is This is knife nice and healthy sort of broad share register than, unlike, it'll sort of be buyers or sellers at the same time. So that's the kind of register you wantto have. And I think many of the other person trust you should aim to be a diversified is that you don't want to be dominated by one shelled US 20%. Who? One of internal reasons. They maybe come cellar 11 point. I think we better leave it there. Gentlemen. Thank you all very much, indeed. Thank you for watching. That's all from us. Goodbye for now.


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