In an age where the investment industry is often criticised for having a trading mentality and an obsession with short-term performance, many investment companies stand out from the herd.
For instance, Hansa Trust just published its results for the year ended 31 March 2014 but I struggled to find the one-year performance numbers in the announcement. The board had taken the view that it had a long-term objective, so rolling five-year numbers were more useful for shareholders.
When it comes to thinking long-term, Hansa has the advantage of being virtually bid-proof. The Salomon family controls the fund by virtue of its capital structure, which includes both voting and non-voting shares.
These family investment vehicles are more common than you might think. Though I believe there is scope for more of them, it is a trade-off between having more public scrutiny of what you are investing in and leveraging up your firepower by bringing in third party shareholders.
One that I have always been interested in – because it is a bit like the imaginary fund I would run if I won the Euromillions lottery – is London & St Lawrence (LSL).
The aim of LSL is to provide long-term capital and income growth. It invests in a portfolio of British government securities and other bonds, approved investment trusts, authorised unit trusts and other financial securities.
LSL is the family investment vehicle of the Ashfield family and today they own 38% of it. It became an investment trust in 1957 and is self-managed – a member of the family has made the investment decisions for it over its entire life.
For much of that time, the fund was the responsibility of Gerald Ashfield. From 1957 until he died in 2009, he was hugely influential over the way it was managed. On his death, one of his sons, Philip, took on the role of chairman and one of Philip’s children, Sean, was appointed a director of the fund. He is in charge of the day-to-day management of the portfolio.
Gerald was 99 when he died. He had worked in the City since 1927 and so had direct experience of the Wall Street crash, not to mention the aftermath of the Second World War, the oil price shock of 1973 and the recessions of the 1980s and 1990s.
His remaining involved in the management of the company long past the age when most people retire, cemented a cautious, long-term approach as the cornerstone of the fund’s philosophy.
In price terms, LSL is one of the best performing funds in the global sector over the past year. More importantly, over the long term it has managed to match the performance of the FTSE All Share Index while exhibiting significantly lower volatility.
The net effect of this decent performance has been to propel the fund through the £100 million mark in terms of both assets and market capitalisation.
Having reached this size, LSL qualified this year for inclusion in the FTSE All Share Index. The demand for stock from index-tracking funds pushed it from trading around asset value to around a 10% premium.
Perhaps sensing that this was unhealthy, the board have called an extraordinary general meeting to approve the issue of up to 10% of LSL’s issued capital to address the over-demand. This has the potential to reverse the shrinkage through buy-backs that the company has experienced over the past few years.
LSL’s largest holding is Consistent Unit trust. Consistent Unit Trust Management Company Limited is a subsidiary of LSL. It manages two open-ended funds, Consistent Unit trust and Practical Investment fund.
Consistent Unit trust has been around since 1988 and had assets of £20.7 million at the end of January 2014. It aims to provide consistent long-term capital and income growth and makes investments in companies the managers believe have proved their worth over the years, by having a consistent record of growth, and good prospects for continued growth in the future.
Practical Investment fund was established in 1941 and had assets of £66.7 million at 15 March 2014. It aims to provide above-average capital growth and increasing real income by investing in a wide spread of investment companies and selected financial securities (akin to LSL).
It also has a holding in LSL worth around £6 million. The unit trust management business made a profit of £318,000 in 2013 and is valued in LSL’s net asset value at £2.2 million.
The rest of LSL’s portfolio, about 50 holdings, is a mixture of investment trusts – mostly large, well-known names such as Law Debenture, Merchants Trust, Witan and City of London, corporate bonds and gilts.
The portfolio generates a decent yield and the ongoing expenses of the fund are reasonable – at 0.75% – so LSL is able to pay one of the highest yields in the global sector (currently about 3.4%).
Funds of funds tend to have a limited appeal but I think LSL is interesting because it demonstrates what can be achieved by investing in investment companies.
Also, it is not a bad collective vehicle for smaller clients whose portfolios might not be large enough to accommodate a broader spread of investments.
James Carthew is a director at Marten & Co