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Goldstone shakes up Keystone with Lloyds and Barclays buys

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Goldstone shakes up Keystone with Lloyds and Barclays buys

James Goldstone has stamped his mark on the Keystone (KIT) investment trust he took over from Mark Barnett, shaking up the portfolio by buying up shares in Lloyds (LLOY) and Barclays (BARC).

Goldstone took over the trust in April and has already made a series of changes to the portfolio he inherited from Barnett, manager of the giant Invesco Perpetual Income and High Income open-ended funds as well as the Edinburgh (EDIN) and Perpetual Income & Growth (PLI) investment trusts.

The move into banks marks a big shift for the trust, with Barnett having long shunned the sector. Goldstone said he had been attracted by the dividend potential of both Barclays and Lloyds.

'These domestic banks trade on attractive valuations and offer the prospect of good dividend growth,' he said alongside the trust's half-year report.

Including special dividends, Lloyds trades on a yield of 4.2%, having paid out 3.05p last year, in only its second year of full payouts following the financial crisis. Barclays yields less, at 1.4%, having halved its dividend last year.

Other purchases include TP Icap (TCAPI), with Goldstone claiming the market was underpricing the synergy potential for the company, formed from Tullett Prebon's acquisition of Icap's voice broking business.

Another addition, Saga (SAGAG), was 'viewed by the market as a car insurer but increasingly looks like a lifestyle brand and appears to be undervalued,' he said. 'Its business now looks set to exploit its considerable dataset.'

Goldstone (pictured) has added to the heavy pharmaceutical exposure he inherited from Barnett with the acquisition of Shire (SHP), which he said was 'valued at a significant discount to the sector and does not have the patent expiry and approval risks of many of its peers'.

Sewing threads and supplies distributor Coats (COA) was 'priced at a discount to the wider market, despite strong growth and very significant barriers to entry' while Cairn Homes (CRN) was 'well positioned to benefit from a likely increase in volume and demand in the prime Dublin housing market', he said.

Goldstone's other additions to the portfolio are housing and social care provider Mears (MERG), takeaway delivery service Just Eat (JE), bowling alley operator Hollywood Bowl (BOWL) and gold miner Acacia Mining (ACAA).

Stocks he has cut from the portfolio include:

  • British Gas owner Centrica (CNA);
  • insurers Beazley (BEZG) and Lancashire (LRE);
  • logistics group Bunzl (BNZL);
  • outsourcing firm G4S (GFS) and
  • real estate investment trusts Shaftesbury (SHB) and NewRiver (NRRT).

Numis, which was today appointed corporate broker to the trust, said the portfolio changes showed the fund was 'becoming increasingly differentiated from its UK stable mates run by Mark Barnett'.

'James' approach has a lot of similarities with Mark, using a bottom-up approach with a focus on quality companies with visible cash flow growth. However, we believe that James places greater emphasis on valuation, and less on the top-down macro framework.'

Goldstone will hope to arrest a period of underperformance for Keystone, which sits in the AIC's UK All Companies sector (also shown as the UK Growth sector by Morningstar on this website). Its shares have delivered roughly half the returns of the FTSE All-Share over both one and five years.

He said he was titling the portfolio towards domestic cyclical companies, which were hit hard by the Brexit vote and presented the most 'valuation-driven opportunities'.

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