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Ian Cowie: investment trusts will stand the test of time

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Ian Cowie: investment trusts will stand the test of time

Longevity is no guarantee of success but investment trusts that have stood the test of time – such as surviving two world wars and the great depression – can offer some comfort to investors alarmed by the historic events we are living through today.

Better still for those fearful about Brexit, one UK smaller companies trust that will celebrate 130 years trading next week is thriving, having multiplied its share price more than 10 times since its current manager took the helm 15 years ago. This Remoaner had better admit straightaway that Neil Hermon has proved the pessimists wrong by delivering total returns of 27% over the last year to shareholders in Henderson Smaller Companies (HSL).

Hermon has beaten the benchmark in 13 of the 14 financial years he has run the fund, lifting its share price from 76p in 2002 to 787p today. So, while I still hope we won’t leave the European Union, his view carries more weight than most and is reassuring for those fearful about the economic challenges ahead.

Hermon said: ‘Britain is one of the world’s strongest performing economies including a wealth of small and medium-sized companies with exposure to both the domestic and international markets. Our view is that the opportunity to create shareholder value by investing in a selection of exciting growing smaller companies is as prevalent today as it has been over the last 15 years.

‘Smaller companies should be able to achieve growth more easily than their larger counterparts, have typically higher operational leverage, more entrepreneurial management and can often deliver substantial growth in dividends for investors. With a generally robust UK economy and improving global growth we would expect UK smaller companies to be an attractive place to invest.

‘This is especially the case because of a pickup in mergers and acquisitions activity, in particular from overseas corporates attracted to UK smaller companies by the weakness in sterling, low interest rates and the ability to finance debt cheaply.’

Many investment trusts can boast histories that stretch back further than the formation of the first UK unit trust by M&G in 1931; most famously Foreign & Colonial (FRCL), which will celebrate its 150th birthday next year. More impressively still, no fewer than 15 investment trusts can trace their roots back to the century before last.

In addition to F&C and Henderson Smaller Companies, they are:

  • Scottish American (SCAM), launched 1873
  • Dunedin Income Growth (DIG), launched 1873
  • JPMorgan American (JAM), launched 1881
  • Mercantile (MRC), launched 1884
  • Scottish Investment Trust (SCIN), launched 1887
  • JPMorgan Global Growth & Income (JPGI), launched 1887
  • Bankers (BNKR), launched 1888
  • Alliance Trust (ATST), launched 1888
  • Merchants (MRCH), launched 1889
  • F&C Global Smaller Companies (FCS), launched 1889
  • Law Debenture (LWDB), launched 1889
  • Edinburgh (EDIN), launched 1889
  • City of London (CTY), launched 1891.

Here and now, few can give such solid grounds to hope that Britain will bounce back from Brexit’s uncertainties as Henderson Smaller Companies. James de Sausmarez, who has been involved with the trust since 1986 – when, coincidentally, I began work as a cub reporter in the City –  tells me the trust was hit hard by the bursting of the dotcom bubble.

Assets had swollen to £722 million by early 2000 but plunged to £142 million by 2003, or not much more than its market cap 20 years earlier. Today the trust has assets under management of £750 million.

For investors more interested in what might lie ahead than behind, the shares yield 2.3% and continue to trade at a discount to net asset value of nearly 15%.

The past, as the regulators insist we say, is not a guide to the future. But it does provide a factual basis upon which to take a financial view. Investment trusts have more history than any of their rival pooled funds and have seen several financial fads and crises come and go. Better still for shareholders today, I suspect they will do so again.

Full disclosure: here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.



 

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