Speaker 0:
Hello and welcome to this is the last session of the conference. I'm delighted to be joined in the studio by Jim Adams, head of research at Boring Money, and James Hart, investment director at the Whitton Investment Trust. Now, Jim, I'm gonna hand over to you and kick us off here. You come here from a retail perspective. What is it that you really want to ask Whitton? Well, I suppose it would be a good place to start with, just to ask a little bit about what makes Whitton distinctive. How would you explain Whitton to a regular investor? So, um, the man on the man or woman on the street as it were

Speaker 1:
well, is what's called a global equity investment company. Um, we run the company on what's called a multi manager basis. So that means that we select experts to, uh, to build parts of our portfolio so that the end product that we provide to our shareholders suits their their needs. Um, and really, our purpose is to help investors grow their wealth significantly over time by investing in equities,

Speaker 1:
uh, aiming to achieve capital growth as well as a growing income year by year over the long term.

Speaker 0:
OK, so one of the things that we found quite interesting recently we do regular surveys of investors, and particularly of the 8% of UK adults who are relatively informed investors who invest in in funds investment trusts. And what we found recently is there's been a bit of an up particular interest in UK equities. I mean,

Speaker 0:
we have to be quite careful to say that I think, um, that's come after a long period over the last five years where steadily, intention to purchase in the UK. Which sector has has deteriorated steadily. Um, so obviously, given the events of those

Speaker 0:
of that period, we weren't starting at an amazingly high base. Having said that, um, most of the investors we survey are still very exposed to the UK equities. Uh, they, um whilst they may not be intending to buy them at the same rate they once were. They have a very high exposure. And what we've seen very recently, which I think we found a bit surprising. If I'm honest I, I think we didn't necessarily expect to see that in the last quarter. Um, but we have seen a bit of a recovery in the intention to purchase, um,

Speaker 0:
in that area. And I know that's something where witan hold a particularly large holdings. So I wonder if you could talk a little bit about that?

Speaker 1:
Yeah, just to to put it into a context. As a global equity fund, the vast majority of our assets is invested outside the UK. So that's approximately 75 or perhaps even a little bit more. Um, percent of our assets are invested outside the UK. But as you say, that means that we've got about 20% invested in the UK equity market, which is high compared to the benchmark that many funds try to to beat and and and global equities in general. Um,

Speaker 1:
and in a way, I'm also quite surprised by the results of your research. Because if you think about, um, the performance of UK equities over the medium to longer term, by which we would say 5 to 10 years, um, somebody who invested in the UK stock market 10 years ago if they invested £100 in the UK stock market 10 years ago, that would be worth 100 and £70 today which you might say is fine. Um, that's just under 6% a year

Speaker 1:
beats inflation. Um, fine. However, if you had invested the same £100 in the US stock market 10 years ago, you would have been up. You would have now had £400 So a significantly different return.

Speaker 1:
Um, and that's why I say I'm a bit surprised by the results of your research because typically, investors look at past performance and are quite influenced by it. But it makes just as little sense to look at past performance. And in fact, a lot of the health warnings on funds that you invest in say, past performance is no guide to future returns. Um, it makes little sense to look at past performance just as little sense as it would make to drive a car using only the rearview mirror.

Speaker 1:
Um, so

Speaker 1:
you know, we have about 20% invested in in UK equities, and we tend to agree with with some of the the results of your research, because there are some great companies in the UK. Um, we've got holdings in companies like the A GO, which is the owner of tanker gin and Johnny Walker and Guinness. We own Unilever, another great global business. AstraZeneca, uh, British Airways space, all great global businesses. But we also have a lot of investments in in much, much cheaper companies.

Speaker 1:
Um, and frankly, the UK market is very undervalued and in our view versus a lot of other markets around the world, Um, in areas such as financials or commodities or industrial so lots and lots of companies about 50 or 60 across our portfolio. But a UK domicile that we think, um, show attractive valuation characteristics versus other markets around the world. So hopefully your research is right.

Speaker 0:
Yes. And I think, um, it's worth bearing in mind, of course, that one of the reasons why

Speaker 0:
UK based, uh, investors who aren't necessarily spending a lot of time doing this even as I subscribe them kind of the 8% of UK adults who spend more time thinking about this than other people. I think it's always important to remember that for most of us, um, who aren't, you know, if you're not directly working in investment, um, you don't need another job.

Speaker 0:
Um, you have a job that takes up all of your time. You, uh you are looking at this in a, uh, hopefully an informed way. But also, it's a at most a hobby, and often less than that is often, you know, it says something you would do almost as a chore periodically. I mean, one of our findings from our research is that the majority of investors the overwhelming majority in the high 70%

Speaker 0:
say they want to spend as little time as possible doing their investments. But this is not their job. Um, this why they're handing it over to your um But, um, so, um, when they have impressions about the markets, often these are formed from news agendas. They're not always looking at all of the metrics, I think, Um and it's not surprising, I think, given both the past performance and also the,

Speaker 0:
uh, future outlook from their perspective that the sector that the UK is is under, uh, under intended as it were for future investment relative to their holdings. Although the other thing we should bear in mind is that UK average UK investor is very over exposed, actually much more exposed than 20% to the thinking about their benchmark much more exposed than that to to UK stock market to be the case.

Speaker 0:
Um, it's interesting. There are some other trends, of course, that that we've seen, Um and in particular I mean, most sectors, actually, we've seen because of concerns about inflation and, of course, rising interest rates, which means people have other forms of return that they can get, Um, that that are so cash returns have at least appeared to improve, if not necessarily relative to inflation.

Speaker 0:
So, um, but we have seen other sectors perform relatively well. In particular, sustainability is one that whilst it has gone off the boil from where it was in 2020 when we saw very, very strong highs during the pandemic for people thinking probably a bit more about the future, Um, having a bit more reflection about that kind of topic and that became a very hot topic with end retail investors.

Speaker 0:
It's not where it was then, but actually that's also the sector where we've seen the strongest recovery in buying intention. I wondered if you had any thoughts about

Speaker 1:
that about sustainability in particular. I mean, there are other themes as well, which we touch on. Um but sustainability

Speaker 1:
it. It's a very broad church. Um, and sustainable investment means different things to different people. Um, and as a fund management industry, we need to be cognizant of that and and and try and put the information out there in a way that is digestible to the individual so they can make their own choices. Um, and in fact, I used the boring money website the other day. Um, there's a great quiz on your website to, um,

Speaker 1:
to allow people to try and work out what kind of sustainable investor they are. And it turns out I'm a pragmatic green, so you go. So let let's just dig into this a little bit and and and think about sustainable investment. And there are different forms of sustainable investment. There's there's impact investing where, um, individuals are very much concerned about owning companies that have a positive impact on

Speaker 1:
society or on the environment. And they're perhaps a little less concerned about the total return that they're going to get from their investment. Although, of course they still want a decent, decent return. Then there are the people that want to exclude some of the nasties from their portfolio, so that might be fossil fuels. It could be tobacco, et cetera,

Speaker 1:
and then the pragmatic greens, which is really where Whitton sits. Um, what we want to do and we've We've implemented a sustainable investment policy where we want our portfolio to be populated by sustainable companies by the year 2030. And that means that we invest in companies or we we get our fund managers to invest in companies which,

Speaker 1:
um, might not be as pure as the driven snow today, but where there are very clear signs that those companies are moving towards a more sustainable position over time. So they're operating with a better environmental footprint, or they're, um, they're engaging with their stakeholders whether that's their, um, their shareholders, their employees, the the people within their local societies, where they operate,

Speaker 1:
um, to produce a better operating environment for themselves and for the planet. Because that's where we feel, um, you get the best returns as a shareholder and the best outcomes for society. Um, so So that's That's one way of of thinking about sustainability. Um, but there's also, um, in a way, as an investor, an important byproduct, and that is that

Speaker 1:
to meet the goals set to reach net zero by 2050 both by governments and by fund managers and by, um, individuals, there is going to have to be billions, if not trillions of pounds spent on

Speaker 1:
the electrification of the of of the grid, um, production of electric vehicles, you know, and all these sorts of things. So at we approach sustainable investment

Speaker 1:
in a number of ways. So the way I've already talked about which is working with EE companies to improve over time. But also, we have nearly 10% of our assets invested in, uh, funds, which approach investment, uh, to, for example, climate change. They want to own companies that are going to benefit financially from efforts to mitigate or adapt to climate change. So that could be

Speaker 1:
companies responsible for building out infrastructure. It could be wind and solar power generators. It could be, uh, mining companies that, uh, that mine copper that go into, you know, the electric vehicles or other materials that go into the batteries that power these these vehicles. So there are all sorts of ways that investors can benefit from the sustainability theme. But what's most important is that we're very clear about what it means to us so that people that are thinking about investing

Speaker 1:
in a sustainable fund,

Speaker 1:
they know what's inside it because quite often there's just a lot of technology companies. Yeah,

Speaker 0:
absolutely. I think that's that's a real um from a consumers. And from a consumer's perspective, it's the clarity that they need. They do understand that things are complicated potentially,

Speaker 0:
um, and obviously you've also got a series of people with different preferences for whom which and would not be suitable as an investment and people for whom it would be. And those, um, what age that is, making sure that people have clarity about what's going on and that they have a clear story, really, about how, um how it all fits together.

Speaker 0:
I think without that people can easily be unnerved by finding mining companies, for example, in a sustainable fund. But But also I think the the message that we see when we talk to end end investors is that they see a very clear synergy in the way that you've described between the future, um, and the future Dina mics of, um uh of the markets and the fact that people will have to adjust to this. So, in other words, they don't, um most investors don't. Uh uh. Many investors are willing to trade off, um,

Speaker 0:
returns against their goals against their sustainable goals, but they actually don't think they'll have to. They mostly think that actually, this has to be the way to make money in the long term anyway, right, So So So these things these things aren't aren't really in conflict. Um, but that that clarity point, I think is absolutely key. You mentioned other themes as well. So I think it's interesting that, you know, for for end investors, um, that slight recovery in the

Speaker 0:
the UK and thoughts about increasing potentially their exposure to the UK and potentially thinking about sustainability of things that have come back a bit. Although everything in a way is down a little. I wonder what you thought other themes were that perhaps aren't resonating with the end investor. But you think perhaps are important. They should.

Speaker 1:
I mean, the theme very much of the first half of 2023 has been both in the media and in the investment world has been artificial intelligence or more, more specifically, generative A. I

Speaker 1:
so chat, uh, G BT or Google's version. Bard, you know, these clearly have stoked the media interest, the lots of excitement, a fair amount of fear as well. Um, and unfortunately, one of the reasons why the UK equity market has lagged many of its peers is we have very few, if any, global quality, um, technology companies. So just thinking about

Speaker 1:
2023 so far, and we're sitting here at the end of June. So halfway through the year, um, the UK equity market is pretty much unchanged over over that period. So up a bit down a bit. And it's now about where it started, where it started the year, Um, the NASDAQ, which is the US

Speaker 1:
stock market that is most heavily populated by these technology companies that are set to be real winners from. And you know, I say this guardedly because, you know, excitement does tend to follow quite far ahead of the fin potential financial returns in the future, so people should not get too excited. Um, prematurely. Um, but there are companies like NVIDIA in the States, which is a maker of, um of semiconductors, uh, Taiwan Semiconductor in Taiwan.

Speaker 1:
Um, even companies like Microsoft and Google are well plugged into this theme of artificial intelligence. Um, and the NASDAQ, which is the market that probably best represents these companies, is up 30% so far this year. So there's an awful lot of euphoria around artificial intelligence. But I

Speaker 1:
I think it's important to stress that

Speaker 1:
when you're thinking about investing in this sort of theme, and I'm absolutely not, you know, sitting here making a recommendation, I think it's for everybody to do their own research. And what is very important is that you give money to experts to pick those securities, those those companies for you because things change very quickly and, um, you can get carried away. Um, and actually, so we've got one or two specialist managers who

Speaker 1:
do buy those companies for us, but it's a relatively small part of our portfolio. And if people are thinking about how exciting a I might be, then they might want to do a lot of research into into, for example, some technology, uh, funds that are that are able to, uh to give them that exposure. But they probably Unfortunately, they probably won't find it in the UK stock market.

Speaker 0:
No, Um, and and thinking about that, that point about handing money over to experts. So obviously people can buy their own stocks. They, they, uh um and they have open ended funds that they can invest in as well. Um, and you know, we typically find with the investors that we talk to that they, um they find it, um,

Speaker 0:
potentially easiest to buy open ended funds. They understand those a bit better. Um, they find, um and that is what What populates most of the Reeves or the fidelity or the AJ bell? You know, the II? I, um um, portal that they log into, or if they're in their workplace pension, that's what it's in. Um, it's in a fund. So an open ended fund. Um,

Speaker 0:
one of the things that we find that they find a bit difficult about investment trusts is the fact that it's pricing is potentially a bit confusing to them. It appears on the face of it, potentially to have two prices, and I wondered if you could talk a little bit about that. If you were thinking about a retail investor and how they might approach that in a sensible way in terms of in terms, of the mechanics of pricing investment trusts

Speaker 1:
without going into

Speaker 1:
enormous shy of detail. I think I think the at at the highest level. It's it's worth just explaining how an investment trust prices. Um, it has what's called a net asset value, which is effectively the value of the investment companies issue shares. There's a fixed number of shares in issue, and they're traded on the stock market.

Speaker 1:
Um, and to calculate the net asset value, you take the total value of the whole portfolio that the investment trust manages, and you divide it by the number of shares in issue. And that's the net asset value.

Speaker 1:
Um, and then, of course, because they trade on the stock market, you have the share price, which is what the investor actually buys and sells is the shares in the company. And that price is driven by not just the net asset value but also by a change in supply and demand. In other words, whether how popular that particular investment trust is, um, or how unpopular it is, um or indeed, how fearful or greedy people are feeling about the future for their investment returns.

Speaker 1:
Um, and if if there's more supply than demand, then the shares will trade at a discount to net asset value. Um, and sometimes they will trade at a premium to net asset value.

Speaker 1:
And at the moment, actually, we're in a situation where it's a bit like the January sales. All investment trust or most investment trusts are trading at a historically wide discount to net asset value. Um

Speaker 1:
so I mean, if you take, for example, our shares trade at a 10% discount to value today, which is as wide as it's been over the last decade. So you know, you might think brilliant. You know its sale time, you know, time, time to to invest in a in a fund at a at a cheaper price. Um, but it's really important. And and I don't want to make too much about this dual pricing or, um, the the pricing of investment trusts because actually, what's really important is

Speaker 1:
that you identify the fund or sorry, you identify what it is that you're trying to achieve with your investment portfolio. You then identify the types of funds that are going to meet those goals. Um, and then in the end, you think about the price you're going to pay. And then, you know, I think about it a little bit like saying, You know, you've got a job interview coming up and you know your wardrobe is bare, so you go to the January sales or you go to the department store and you go and buy yourself a new dark suit and you walk in and

Speaker 1:
happy days. It's January and you know the suits reduced by 10%.

Speaker 1:
And then, of course, there's the bargain rail over there, where the suits are reduced by 50% because they're pink and fluffy. Now you could buy that one because it's on a 50% discount. But actually, that's probably not going to do your prospects much good if you're going for a job interview. So the most important thing is to buy the right suit and then, you know, worry a bit. Worry about the price afterwards, not the cheap one, just because it's cheap.

Speaker 0:
Yes, absolutely. And I think what we would recommend to, which is when we talk to them, is that really it is the it's the price you actually have to pay for it. That matters. As as you say, It doesn't matter how it's what you need. Um, that's just the price. Um, and in a way, the price is the guide

Speaker 0:
to the current valuation that the market places on that on that thing. You're probably paying a fair price. It's a traded instrument for something. Why did you trade to trust? And therefore, um, therefore, the price you pay is essentially, that is probably the fair price right now fairer than for things you might buy. John Lewis that could be on for a better discount. And Tess get around the corner and I, James something that was explained to me in the industry when I joined that stuck out To me,

Speaker 0:
it was a the fixed pool of capital as well that manager hats they don't have to worry too much about redemptions or without changing. And that allows them to go about their business without without worrying too much.

Speaker 1:
That's that's absolutely right. And, you know, it is actually a byproduct of the of the of the structure of the investment trust, Um, and that there are lots of advantages. And and I know that people can get a bit hung up about, you know, the fact that they might appear a bit more complex. But,

Speaker 1:
um I suppose you know, having been in the industry for 30 years, I might say this might, but actually, I think they're They're quite It's quite simple once you get your head around it. Um but, yeah, the the point that you make about, um the closed end nature of an investment trust is is crucially important to one of our what we see as one of our, um, real advantages over the open end fund space. Because we can, we can invest in assets

Speaker 1:
that are to use the jargon less liquid. That just means that they're not so easy to to buy and sell readily. Um, And when you're running an opening fund, you need to be able to buy and sell those assets to meet

Speaker 1:
money flowing in and money flowing out of the plant. So it gives us the advantage. We can invest for the very long term, sometimes own assets that are less easy to buy and sell, but which might give us a better return over the long run. And we've got many holdings within our portfolio. Um, that are more specialists that that that tick that

Speaker 0:
box. And I think when when we are trying to explain to investment trust to,

Speaker 0:
uh, to regular consumers, I think what I tend to focus on is is that long term nature? There are a number of features,

Speaker 0:
the fact that you can borrow money, the fact that, uh, you can hold assets you don't that aren't as easy to buy and sell all the time.

Speaker 0:
Um, but lots of and the board structure the way that it's overseen. I think all of these things add up to a set of incentives for you running it. That point towards the longer term that enable you to take a slightly longer term view than the manager of an open-ended. Fund is able to do so And so that, uh, long term nature of of the structure that it exists and invest many investment trusts have existed for

Speaker 0:
over 100 years. So, um, the oldest being, I think, over 100 and 50 years old. So, um, you know, these are very long term vehicles. Um uh, they they They offer you access to something slightly different, perhaps, than an open ended fund where you put money in and money comes out,

Speaker 0:
Um, does and therefore and therefore offer something slightly different. And that brings us on, I suppose, to what kind of role this might play in a portfolio. So why might you only you talked about buying the right suit for the right job interview, right? Or whether you

Speaker 0:
going to a big party with the pink fluffy suit might have been more appropriate if you're playing,

Speaker 1:
if you're

Speaker 0:
playing Glastonbury and you're you know, you're Elton John, like like us closing out the festival. Um, you you might want the pink fluffy suit. So it is. You know, it's very much about horses for courses picking the appropriate instrument. So

Speaker 0:
I know also the investment trusts come in a wide variety of flavours. There are ones that you might consider taking quite big bets, relatively high risk relative to be concentrated on one thing. Um, making making bets on a particular area. Um, and there are others that are very different to that. And I wondered if you could

Speaker 0:
describe what role you think Which plays in someone's portfolio? Why? Why would someone buy into their Well,

Speaker 1:
first of all, I'll just pick up on a couple of the advantages you mentioned there, which which hopefully will help explain the role that we think the Whitton plays in A in A portfolio. Um, you're right that investment trusts or investment companies same two different words for the same thing. Um,

Speaker 1:
are able to borrow money to to to help to, um, to, uh, improve investment returns over over the long run, although obviously gearing can work against you as well. But over the long run, equity prices tend to go up, so gearing tends to work in your favour. Um, one of the great things about an investment trust with their very, very long history and hopefully very long future Whitton was founded in 19 09 is that we're able to borrow money

Speaker 1:
at a fixed rate. Um, and in fact, we have bought money that we have borrowed at a fixed rate of less just under 3%

Speaker 1:
till 2054.

Speaker 1:
Now, that is significantly less than the government is paying to borrow

Speaker 1:
for two years. So you know that is a tremendous advantage, and we're not alone in this. Other investment companies are also similarly structured. Um, but I, I must add that, you know, we use gearing sparingly and in moderation to help generate additional returns so that it's not too high risk because we're very aware that most of our investors are private individuals. In fact, um, private individuals make up the majority of of our shareholder register, which is which is unusual. Um, the second advantage is, um,

Speaker 1:
dividends that we pay. We're we're as an investment company. We're able to squirrel away, um, some revenue that we've earned in good years, so that when you go through a period like covid, and suddenly lots of companies around the world are cutting their dividends, the revenue that and receives falls. But we can use these revenue reserves to help support our growing dividend year by year. And in fact, we've grown our dividend for every year over the last 48 years.

Speaker 1:
Um, so you know, those are two tremendous advantages for the investment trust structure. So that sort of slightly brings me on to where does fit in an investor's portfolio? Um, we're a global equity investment company. We're a multi manager, so it means that we're quite diversified. We've got some specialist investments in the portfolio as well. So we really do consider ourselves to be a one stop shop for global equity investment. And therefore,

Speaker 1:
we believe, a cornerstone investment for many individuals. Portfolios, um, so cornerstone or foundation or whatever you want to call it. So you know, a reasonable allocation for their global equity portfolios. That's not a recommendation, but, um, and, you know, so investors might want to combine with and with one or two other investment trusts that are doing similar things to build a nice kind of platform, Um, of, uh, an equity portfolio.

Speaker 1:
And then, of course, we can go on to talk about technology or or all these sorts of other more specialist trusts where, um, you know those and it very much depends on the investor's age. You know, people that are much younger might want to take a bit more risk because they're going to be invested for the longer term. People that are a bit older might want to have a few, you know, sort of multi asset funds in there, which might contain some bonds or or other things which will behave a little bit differently.

Speaker 1:
Um, but really, we see as a as a core part of an equity portfolio that people when they get a bit more experienced and a bit more interested if they do want to get interested in investment, they can add other things to it over time.

Speaker 0:
Well, look, I'm conscious of time. Um, I didn't think we get a reference to Elton John's set, but we did. I'm pleased we did pink suits. Um, well, Jim, thank you very much to you and James. Thank you very much to you. And thank you very much for watching. Um, I would like to thank our sponsors. I'd also like to remind you watching now that this will all be available to replay on the conference site. And plus, there is an interview with Nick Britton of the A IC that you can watch in the resources as well. Again, I'd like to thank our partners and our sponsors, and we'll see you on the next one. Thank you very much.