Investment Trust Insider: Independent trust - doing what it says on the tin

Sometimes an investment company’s name perfectly encapsulates its investment style. Independent Investment Trust is one such fund. Launched in October 2000, as the madness of the tech bubble was just starting to be exposed, it is a self-managed fund, run since inception by Max Ward.

The investment objective is to provide absolute long-term growth. The portfolio will probably always have a bias to the UK, may be quite concentrated and, when they think it is appropriate, the fund may have relatively high levels of gearing.

With just Max’s salary of £150,000 to pay plus the usual unavoidable overheads, the total expense ratio is very low – around 0.4% of the fund – the lowest of its peers, even though Independent is smaller than many of its competitors.

The market cap is not tiny, at over £120 million, but there is not much trading in the shares and this may be one reason why it sits on a 14.6% discount which is wider than most of its global generalist peers (and a little wider than its 12 month average). They do buy back shares to moderate the discount and enhance the asset value.

The no-nonsense style reports they publish for shareholders give one insight into the investment approach, but the risk disclaimer in the annual report sums it up best – ‘the company’s policy is designed to allow the company an unusually high degree of freedom to exploit the directors’ judgement.

'To the extent that the directors’ judgement is flawed, future results could be unusually poor’. They also make the point that the portfolio is designed to have less diversification of risk than the typical fund.

The fund is benchmarked against the FTSE All-Share Index and it is currently the most UK-centric fund in the global growth sector – about three quarters of the fund is invested in the UK with the balance mostly held in North America.

There are no formal limits on asset allocation however. Part of the premise of the fund is that the portfolio will not be constructed with any reference to an index or benchmark.

The directors can take this stance as they are some of the largest shareholders in the fund. The chairman is Douglas MacDougall, the former senior partner at Baillie Gifford. Max Ward was the former manager of Baillie Gifford’s Scottish Mortgage Trust. James Ferguson was the chairman of Stewart Ivory & Co and Robert Laing is chairman of the legal firm of Maclay Murray & Spens. Between them they own 15.9 million shares – over a quarter of the company.

They had a good start, the fund tended to trade at a premium to asset value and returns were impressive. However, 2007 and 2008 were very poor years for the fund. Going into the credit crisis the fund was geared and had large bets on banks, including Northern Rock, house builders, European property funds and retailing.