Sterling weakness points to global trusts

[forrado]

“Stifel Securities has updated its list of global investment trusts with low UK exposure after the hung Parliament election result.” …

http://www.theaic.co.uk/aic/news/citywire-news/election-2017-sterling-weakness-points-to-global-trusts

I like to think I’m ahead of the game of this issue. Following the Brexit vote I had a big rethink about the active total return part of my portfolio, represented by my SIPP, and exposure to the UK. Since when I’ve been running down what was a 60% UK weighting to a present level of 33%. As a result six trusts have been reduced to three.

Looking at Stifel Securities IT list of globalist candidates, I’ve already established new positions in two of the recommendations. Securities Trust of Scotland (STS), following the parachuting in of a new fund manager from outside of Martin Currie, and Murray International (MYI), on resurgent signs of Bruce Stout and of his idiosyncratic approach to global investing. With my SIPP now holding 11% cash and a further 8% chunk due by the end of this week as result of the tender offer return of funds from a no longer wanted holding of the Polar Capital Global Healthcare G&I Trust (PCGH). I will be looking to add to my SIPP positions in STS and MYI in due course.

Of late; I’ve also become interested in another one of the Stifel Securities global picks, the venerable British Empire Trust (BTEM). A long time practiced deep value specialist identifier of under-researched and under-valued assets sheltered inside closed end structures. Run by the boutique Asset Value Investors since the founding of AVI by John Walton in 1985, the BTEM value investing style very much failed to deliver when global QE got into full swing. Such apparent loss of direction attracting the share register interest from the US of 1607 Capital Partners and Elliot Capital Advisors who duly set about rearranging the furniture.

Out went the incumbent manger and John Walton’s anointed successor, John Pinnink, who was persuaded to stay on as Chairman of AVI. Up stepped Joe Bauernfreund to take charge from the start of October 2015. The way AVI works very much dictating the need for a trained insider, the new man in charge having served a 14-year apprenticeship under the guidance of Walton & Pinnink. Recent performance stats indicate that the show is back on the road. With signs that investor interest is picking up, a previous 15% discount having tightened up to 10%.

The on-going charges ratio currently weighs in 0.9% of shareholder assets, which is not bad for such a specialist trust. Has very robust revenue reserves (+ 2 years cover) and paid out a two-part annual dividend of 11.7p per share during the trust’s last financial year. Also, has a record of paying out one-off special dividends when appropriate. The trust’s total gross assets of £983.4m are £70.7m more than the £912.7m net assets which accounts more or less for the £70m borrowings.

Sight of the full Report & Accounts for the period ending 30 December 2016 that can be viewed at …

http://www.british-empire.co.uk/content/uploads/2016/11/British-Empire-AR-2016.pdf

Shows a total of 36 holdings (of which 10 make up 50%):
UK – 6.4% … North America – 19.3% … Europe – 36.7% … Asia – 16.6% … Japan – 9.1% … Other – 11.8%. I tend to go along with the near 75% combined focus away from the UK and US because of my belief that there are better growth prospects in other regions as things currently stand. Also when studying the Strategic Report beginning page 12 of the report the NAV discounts that many of the holdings are on appear extremely deep and attractive.

Can anyone else come up with anything else I might have missed?

[Dod1010]

For non UK oriented trusts, British Empire is I think a decent choice. I held it for a long time and sold it only when its results turned down. Securities Trust of Scotland would not though be on my radar. RIT is good and doing well as is Caledonia, and Murray International is certainly a fund to hold. The individual investment style of a trust is to me far more important than whether it is UK oriented or not. Anyway many (in fact probably most) UK oriented trusts have big international exposure because these days it is very difficult to find an individual share that is purely UK oriented. Think Shell, BP, the tobaccos, even the support service companies and most property companies have got some international exposure and thus will benefit from Sterling's weakness (A lot of the weakness is already in the share price or will be fleeting anyway)

I never buy ITs that are too specialised and prefer generalists so that they are good for all seasons, but I would not consider trying to be 'ahead of the game'. Who knows what the effects on investments will be from a hung parliament, or from Brexit or quite a lot else.

Dod