Investment Trust Watch

A general thread for all things investment trust. I'll start with a brief intro, mainly pulled from posts I made elsewhere, and some basic resources. Beyond that I will share news and interesting things I come across about various Investment Trusts. I invite you to do likewise, hopefully we can get some good discussion going about specific Trusts.

**Not an Expert**

The "safest" way for lay people to invest may be in funds/ETFs. These are basically instruments that track an index, or others in certain types of investments. So for example you might invest in one which tracks the S&P500 (The biggest American companies, as an EU citizen you can't really invest in this but anyway) so as the market goes up or down so does your ETF. You can just buy it and leave it to do its business, you don't need to keep an eye on things the way you would if you invested in a particular company. However there is a major problem with this strategy, namely the Irish tax laws, specifically "deemed disposal". Basically, every 8 years you have to pay a tax of 41% on any growth/profits and the same rate on exit.

This tax rate is pretty crippling, and certainly damages compounding.

Investment Trusts are the next best thing (and better in some ways). Basically, Investment Trusts are closed end funds, sort of holding companies that are actively managed by a board etc. and listed on the UK market. There are lots of different types with different priorities and philosophies. The manager, depending on the rules of the Trust, can invest in a whole range of things, from shareholdings in particular stocks to bonds, commodities, cash, real estate etc. Most will either use or have the option of using "gearing" (borrowing/leverage). These ITs often have a base index they aim to "beat", which many ITs have a great record of doing. If your IT manager is good/lucky you can make very good gains above what you might in a comparable index, obviously the opposite applies too. Many pay good dividends. The downside is that the company charge a higher fee (usually) from the assets under control than happens with open ended funds/ETFs, but this would seem to me to be a small quibble, especially as IT's are treated, tax wise, the exact same as regular stocks. That is, you pay income tax as normal on dividends and the normal Capital Gains Tax when you sell. This is a massive advantage in two ways: CGT is 33% (less than for an ETF) and if you make a loss you can carry it forward and offset it against any future Capital Gain you may have. You cannot do this if you make a loss on an ETF.

I have checked the tax status of IT's in some detail. Revenue have never said that they should be treated the same as regular stocks. In practice they are. In theory, Revenue could change the rules and say they should be subject to deemed disposal, but this is very unlikely for two reasons: The first is that tax is being paid on an ongoing basis on any dividends. Secondly, is the way in which the IT's trade, they are subject to a premium or discount.

Premium and Discount

This is a very important factor to be aware of. IT's have a Net Asset Value (NAV) which is the real world value of their holdings. So lets say an IT owns only ten stocks, the entire value of which on the open market is £1,000,000. The value of the IT share that you buy on the stock market is not necessarily reflective of that value. Lets say it has ten shares, you would think that the value of the share would be £100,000. But not necessarily. The shares of the IT can trade at a premium or a discount to the NAV. So in our example the shares might trade at £90,000 or £110,000 giving it a discount/premium to NAV of -/+ 10%.

This means there is a great opportunity to essentially pick up shares for less than they are worth now and money can be made if the discount to NAV narrows, even if the underlying value of the shares the IT holds stay the same. You could also "overpay" by buying at a premium. You might think this sounds straightforward, and you should just buy whatever has the biggest discount and don't buy anything at a premium. No, not so fast, you need to investigate. There are often very good reasons for there to be a discount or premium. The NAV is not static, and can go down as well as up.

That said, sometimes discounts are caused by market panic over short term issues, so you can pick bargains up here.

There is also great opportunity (which appeals to me) to pick up particularly good bargains by buying Value orientated IT's at a discount to NAV. In theory, if I buy one of these at a discount, I am buying a company that has made investments that it felt were at a "discount" to their real worth, so I am getting a "double discount" which could give me great returns.

Some ITs try to make sure there is no or a very small premium or discount to NAV. They do this by issuing more shares when there is a premium, and buying shares back when there is a discount.

Closed vs Open Ended

This is a key distinction that is important to understand. Basically, with an open ended fund (Investment Trusts are not open ended) you pay your money into a fund and it is invested. If you sell, the fund manager will have to sell also to give you your money (simply put). This is why you can usually only buy into funds at a fixed end of day price, whereas closed end funds are traded like normal stocks. With a closed end Investment Trust, you are not "giving" your money to be invested, rather you are buying a share in a "holding company" of sorts which makes investments. The company raised money to invest by issuing shares, this is the "pot" which is used. The share price of the IT going up or down has zero impact on this pot.

There are some advantages to this arrangement, one of them is that IT shares can easily be traded like any other stock, but another is that if there is a run and everyone panic sells their shares in the Trust, in theory the manager can sit there and do nothing, he does not have to go and sell stuff like he would with an open ended fund. So for example, he may have made some investments in undervalued assets which have not "come good" yet. If the shares of the Trust go down, he does not have to sell anything. In such an instance if the NAV has not been decimated, the share price would just go to a massive discount and recover when people stop panicking. In an open ended fund loads of stuff would have to be sold, which can kill the fund entirely. This was one of the reasons why Neil Woodfords fund collapsed, basically everyone wanted their money back, and he had a load of illiquid assets that could not be quickly sold, or sold at anything close to their normal price because they were desperate. He has claimed that if given more time prices would have recovered and the fund not gone bust. If it had been an investment trust, he would have been able to find out as he would not have had to try and sell everything (that said there are more reasons why it failed, he messed up big time, I'm just making a point).

Investment Managers

Investment Trusts are run by a board who are answerable to shareholders, like in any other company. They appoint an investment manager to run the trust, usually from an asset management company. They can sack and replace the manager if they wish, usually if the shareholders demand it after a period of underperformance by the trust. So, in theory, if a manager makes a bags of running a trust he can be sacked and someone else can give it a go. Remember, the trust still has the "pot" to work with (unless the previous manager literally lost everything). So what can happen is that a manager can be getting poor returns, be sacked, someone new come in, sell the previous managers investments and replace them with their own, and really reinvigorate things. The point to take here is that if a Trusts has underperformed and perhaps left you in the hole a little, a change in manager may certainly improve things.

Recently it was announced that the investment manager of Scottish Mortgage, James Anderson, is retiring next year. With ITs it is vital to keep an eye on the manager, and who managed it in the past. IT managers can have their own style (and luck!) that can massively affect the performance of the trust. When you are looking at past performance of an IT, you have to account for the manager - if a new one was appointed last year, the IT performance 3 years ago is of limited use. But if the manager has been in charge, and successful, for a long time then past performance is useful. Of course, past performance does not guarantee anything, but if a manager consistently beats his index it does mean something.

That said, a change in manager might not result in a significant change in philosophy and performance, particularly if an assistant from the same firm is taking over. This is the case with SMT, Baille Gifford remain in charge, and an experienced deputy is taking over. The same is happening with Monks. This is the ideal form of transfer, if the manager has been successful. A change in manager can also be a massive shot in the arm for an under-performing trust, case in point is Temple Bar.

Trust investment managers differ wildly: James Anderson is a dedicated (and wildly successful) Growth style investor. Peter Spiller, manager of CGT for coming up on 40 years is a far more conservative, Value style investor (also extremely successful). Some managers are also "active" managers. Take Christopher Mills of North Atlantic Smaller Companies, he specializes in getting positions in companies, then actually going in and forcing changes, forcing out and replacing company managers etc. He has been fantastically successful for decades and has a "value" style philosophy. It is important to know who the manager is, and what their style is. If you picked a Trust because it has a Value style, and the manager is replaced by a Growth manager, you might look at closing your position as maybe you specifically had this Trust in your portfolio because of the style.

Investment Trust Resources

All ITs are listed here, and you can filter to find the type you want: https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false

When you find one you are interested in, on the AIC website it gives you direct access to Monthly Factsheets, as well as Annual Reports. This is the best "one stop shop" for IT info. But obviously Google around and read all you can.

There is also a dedicated Investment Trust Podcast, giving a weekly roundup on IT news and action: https://www.theaic.co.uk/insights/podcasts

Books:

There are a couple. The Investment Trusts 2021 Handbook appears to be currently free on Kindle. I bought this and found it very interesting. However, its not exactly a critical guide, more an advertisement for the industry, but as a free introduction you can't really argue.

The Financial Times have a guide, an older version of which I have read: https://www.amazon.co.uk/Financial-Times-Guide-Investment-Trusts/dp/1292001569/ref=sr_1_5?dchild=1&keywords=Investment+Trust&qid=1620240659&sr=8-5 This was ok, but nothing more.

The best book (it would want to be for £40) seems to be this one, Investment Trusts a Complete Guide, just published in February by a noted long time observer/expert: https://www.amazon.co.uk/Investment-Trusts-Complete-Andrew-McHattie/dp/1527281752/ref=sr_1_3?dchild=1&keywords=Investment+Trust&qid=1620240074&sr=8-3 I have not read this yet myself, but will probably pick it up soon.

tl;dr
If you do not think you can consistently buy and sell great stocks in companies that will give you (hopefully) great returns, and would rather have an 'expert' do this for you, IT's are great. You can buy a selection of them and get exposure to loads of great investments. They are better than funds/etfs in Ireland mainly because you will pay less tax.

Very interesting interview with one of the Managers of Scottish Mortgage (SMT) the biggest Investment Trust. Explains all about the approach of the trust:

Tom Slater of Scottish Mortgage: growth, the pandemic, and the importance of optimism
Merryn talks to Tom Slater of the Scottish Mortgage Investment Trust about investing in growth, the pandemic and its aftermath, why optimism will always bring better returns than pessimism, and why nothing compares to Tesla.

https://moneyweek.com/investments/investment-strategy/603184/tom-slater-of-scottish-mortgage-trust

Personally I do not like the 'twin dangers' SMT has, of a large amount of unlisted investments that we know little about, and the high concentration % wise of the holdings in their top ten positions. Personally I went with the stablemate Monks investment trust. It is much more diversified, and doesnt have the unlisted investments 'issue'.

That said, if SMT have their investments picked properly, and their unlisted investments go great, then they will do really well. Bit too risky for my taste. I don't like TESLA.

jams100

Good thread, thanks!
Question: if an investment trust buys apple shares for example how are the dividends accounted for? How are these dividends taxed? Does anyone know roughly what tax these investment trusts pay on dividends?

jams100

jams100 wrote: »

Good thread, thanks!
Question: if an investment trust buys apple shares for example how are the dividends accounted for? How are these dividends taxed? Does anyone know roughly what tax these investment trusts pay on dividends?

It depends. My understanding is that usually three things happen:

1. Usually the ongoing charges and fees for running the IT and paying the manager are taken out of the income generated by the investments the IT has made.
2. Up to 15% of investment income/dividends can be saved by the IT. Usually this is to build a reserve to enable the IT to pay a consistent dividend to shareholders even if one year doesn't go that well.
3. The remainder is paid out to shareholders as a dividend from the IT. (lots of ITs have great records for increasing their dividends every year, so-called 'dividend heroes' although Covid stopped that for some: https://www.theaic.co.uk/income-finder/dividend-heroes)

Tax wise, for the IT share holder you just pay tax as normal on the dividend you receive from the IT. As to what tax the IT itself pays on the dividends it gets from its investments, I do not know.

Some commentary from the manager of Temple Bar Investment Trust (Which I hold).

https://www.morningstar.co.uk/uk/news/211358/value-rally-has-further-to-go.aspx

https://www.morningstar.co.uk/uk/news/211359/3-value-stock-picks.aspx

They are big on Royal Mail, who are publishing their earnings on the 20th May, which will hopefully be good and give Temple Bar a nice bump

Black: So, you're going to talk us through three stocks in the portfolio at the moment. Where should we start?

Lance: I'm going to start with the biggest holding on the Temple Bar portfolio which is Royal Mail (RMG) which is about 8.5% of the fund at the moment. And the reason I think it's interesting is it's a good example of what we think is a really misunderstood stock, and I think they'd probably help themselves if they change their name from Royal Mail. Because what that meant was that last year as we went into lockdown, I think people focused on the letter side of the business, thought that that was going to be really hit by lockdown, and it was. But what people completely ignored was the fact that Royal Mail have 50% market share of the parcels business in the U.K. And of course, as we were all at home last year shopping online, parcel volumes went through the roof. So, last year parcel volumes in the U.K. for Royal Mail were about plus 30% and so were parcel revenues. And they also own the European business called GLS, which again is a pure parcels business. And similar sort of effect there. So, volumes and turnover growing about 30%. And so, just after lockdown the share price of Royal Mail bottomed at about £1.20. And it was only as we went through the year that people began to realize that actually lockdown was a positive for Royal Mail as these parcel volumes soared and the share price today is well over £5. So, their share price is up a long, long way.

Dividend (interim) declaration of 9.75p: https://uk.finance.yahoo.com/news/temple-bar-investment-trust-plc-152300172.html

HillCloudHop

About half my portfolio are in investment trusts, mainly Monks and some Scottish Mortgage. Also have Allianz Tech and Edinburgh Worldwide. Want to buy into Pacific Horizon, but waiting for its premium to drop. I'm aiming for growth and want to minimise dividends.

HillCloudHop

HillCloudHop wrote: »

About half my portfolio are in investment trusts, mainly Monks and some Scottish Mortgage. Also have Allianz Tech and Edinburgh Worldwide. Want to buy into Pacific Horizon, but waiting for its premium to drop. I'm aiming for growth and want to minimise dividends.

Lots of Ballie Gifford there, are you a bit worried that there might be some group think? (That said they have done great so far).

I have tried to avoid multiple trusts ran by the same firm.

HillCloudHop

Erica Breezy Concrete wrote: »

Lots of Ballie Gifford there, are you a bit worried that there might be some group think? (That said they have done great so far).

I have tried to avoid multiple trusts ran by the same firm.

I do agree that I'm too heavily weighted on BG at the moment. I like their relatively low fees and dividends. There's no guarantee that they'll outperform the market this decade though. I still have some cash to invest. I'm looking at some other trusts including FCIT and JP Morgan American Investment Trust.

Robson99

HillCloudHop wrote: »

About half my portfolio are in investment trusts, mainly Monks and some Scottish Mortgage. Also have Allianz Tech and Edinburgh Worldwide. Want to buy into Pacific Horizon, but waiting for its premium to drop. I'm aiming for growth and want to minimise dividends.

Something similar here. Main ones I have are Monks, SMT and Allianz. Smaller amounts in Capital Gearing and Schroder Asian. Thinking of adding Temple bar as well. Investing into all these each month and try to time a dip

HillCloudHop

HillCloudHop wrote: »

I do agree that I'm too heavily weighted on BG at the moment. I like their relatively low fees and dividends. There's no guarantee that they'll outperform the market this decade though. I still have some cash to invest. I'm looking at some other trusts including FCIT and JP Morgan American Investment Trust.

I think Japan will be a good place over the next while. Lots of cash rich companies there that are somewhat inefficiently run and organised. This trend is changing (inefficiency) which should result in better returns for shareholders.

A write up here, but obviously do your own research, there are lots saying the same thing basically: https://www.gmo.com/americas/research-library/japan-value_an-island-of-potential-in-a-sea-of-expensive-assets/

I have some decent exposure to Japan through AVI Global (AGT, formally British Empire) as about 14% of its portfolio is in what they call Japanese Special Situations and about 25% altogether of the portfolio is based in Japan.

Regarding Ballie Gifford, they are amazing growth investors, but if the current tilt to value is not just a blip, they may underperform going forwards. My personal preference is towards value investing (probably because I can clearly grasp and understand it on an intellectual basis) but I have some growth in my modest portfolio, Monks Investment Trust, JPMorgan Emerging Markets and Polar Capital Technology.

Regarding America, currently I invest in Berkshire, but they have shot up in value recently, which could mean that expected future returns are lower now then when I first picked them (only 2 months ago!). I had expected them to go up maybe 10% over the rest of the year, but they have eclipsed that already, so I have to decide if dripping more money into them is worth it, i.e. if I think it can go up by another sizable amount and still be fairly valued. If I think it may only go up by a little, then I think my money might be better placed into an America orientated trust. (This is the trouble with equities, have to think about these things but with trusts 'experts' make these calls!) I will see what the situation is in the Autumn and make a decision then.

If I decide my money is better off somewhere else, I will pick JP Morgan American. I like their approach, they basically have their trust divided into three, growth, core and value. Different managers pick the growth and value. It's a good set up I think. This would give me two JP Morgan operated trusts, but at least the investments will not in any way overlap as they are firmly divided by region. (USA and emerging markets).

Robson99

Robson99 wrote: »

Something similar here. Main ones I have are Monks, SMT and Allianz. Smaller amounts in Capital Gearing and Schroder Asian. Thinking of adding Temple bar as well. Investing into all these each month and try to time a dip

Personally I have 9 holdings and invest every four weeks exactly on a specific rotation of 3 at a time. Takes the thinking and trying to time the market out of it!

Keep your eye on the discount, and when that's at a nice level pull the trigger for your first investment in it then, rather than looking at the trading share price would be my suggestion.

allrightya

What platform /broker do people use for investing in investment trusts?

HillCloudHop

Erica Breezy Concrete wrote: »

Personally I have 9 holdings and invest every four weeks exactly on a specific rotation of 3 at a time. Takes the thinking and trying to time the market out of it!

Keep your eye on the discount, and when that's at a nice level pull the trigger for your first investment in it then, rather than looking at the trading share price would be my suggestion.

Which broker are you using? I was with Degiro, but they've stopped allowing me to buy any of the investment trusts. Now with IBKR, which has access to most of them.

Supercell

HillCloudHop wrote: »

Which broker are you using? I was with Degiro, but they've stopped allowing me to buy any of the investment trusts. Now with IBKR, which has access to most of them.

There is an easy test to take to be allowed to buy them, everyone can still buy on Degiro just in case someone is reading this and thinks that wasnt the case.
Degiro's IT coverage is pretty woeful that said, I find T212 far better however my account there is denominated in dollars so i am loosing out on two exchange fees when buying UK Trusts but i digress.

HillCloudHop

Supercell wrote: »

There is an easy test to take to be allowed to buy them, everyone can still buy on Degiro just in case someone is reading this and thinks that wasnt the case.
Degiro's IT coverage is pretty woeful that said, I find T212 far better however my account there is denominated in dollars so i am loosing out on two exchange fees when buying UK Trusts but i digress.

What test is that? I already have the 'complex shares' permission on in my settings.

Can you buy ITs on Degiro as of today? I contacted Degiro a few months back and they said that no one had access to buy them, only sell. They couldn't confirm that it would change.

I'm staying with IBKR regardless, as they've got more access to other sectors (uranium mainly) I'm interested in. It's a publicly traded company with offices worldwide. Degiro is private company in the Netherlands with 300 employees.

Supercell

HillCloudHop wrote: »

What test is that? I already have the 'complex shares' permission on in my settings.

Can you buy ITs on Degiro as of today? I contacted Degiro a few months back and they said that no one had access to buy them, only sell. They couldn't confirm that it would change.

I'm staying with IBKR regardless, as they've got more access to other sectors (uranium mainly) I'm interested in. It's a publicly traded company with offices worldwide. Degiro is private company in the Netherlands with 300 employees.

I stand corrected, my apologies HillCloudHop, i wrongly assumed it was their test thing stopping you. I just did a search for a few ones I've held previously and they are all gone now, very weird.
I'm going to stop adding to my Degiro account from here on as I do want to own more IT's going forward.

HillCloudHop

HillCloudHop wrote: »

Which broker are you using? I was with Degiro, but they've stopped allowing me to buy any of the investment trusts. Now with IBKR, which has access to most of them.

HillCloudHop wrote: »

What test is that? I already have the 'complex shares' permission on in my settings.

Can you buy ITs on Degiro as of today? I contacted Degiro a few months back and they said that no one had access to buy them, only sell. They couldn't confirm that it would change.

I'm staying with IBKR regardless, as they've got more access to other sectors (uranium mainly) I'm interested in. It's a publicly traded company with offices worldwide. Degiro is private company in the Netherlands with 300 employees.

If you are in Ireland and want to buy Investment Trusts there really are only two options (unless you go for an expensive broker and are loaded).

They are Trading212 and IBKR. Trading212 are not accepting new members, and have some other issues that you get with "free" brokers, so that leaves IBKR as the default, the cheapest, and the best currently available. Even if DeGiro listed ITs, their fees are more expensive for UK stocks than IBKR if you are making regular purchases. But they don't list ITs so that's the end of that anyway, so IBKR it is.

AICs Monthly Newsletter for May: https://theaic.turtl.co/story/compass-may-2021/

Interesting bits on UK hospitality (in particular) and office vs warehouse property

Interesting from AVI Global (AGT), and as a holder of AGT its good to see this type of activism

Asset Value Investors (AVI), manager of the £1bn AVI Global (AGT) investment trust, has launched a campaign to oust the board of Symphony International (SIHL), a poorly-performing London-listed Asia private equity fund in which it has a 15% stake.

AVI, an activist investor in undervalued investment companies and holding companies, wants to gather the support of another 15% of shareholders to call an extraordinary general meeting (EGM) to replace Symphony’s directors who it says have failed to hold fund manager Anil Thadani to account.

AVI, led by AGT fund manager Joe Bauernfreund, usually prefers to work quietly behind the scenes to get the changes it wants at companies, but after nine years of what it calls ‘abject’ performance from Symphony, has decided to go on the attack....

....Launching the campaign, Tom Treanor, AVI’s executive director, said: ‘The poor performance of Symphony International Holdings Ltd has gone on long enough. We have two key aims and we need the support of our fellow shareholders to make them a reality.’

The aims are to highlight what AVI claims are conflicts of interest and poor stewardship by Symphony’s board, as well as call the EGM.

Thadani, founder of Symphony and leader of its investment team, hit back yesterday telling shareholders ‘many of AVI’s allegations are inaccurate and misleading’ and that its intention was to seize control of Symphony and liquidate its assets...

...At the end of March, AVI Global held 2.1% of its £1.1bn portfolio in Symphony.

https://citywire.co.uk/investment-trust-insider/news/asset-value-investors-attacks-abject-symphony-board/a1505107?ref=investment-trust-insider-latest-news-list

Weekly trust watch, reviewing what has happened over the week with ITs: https://citywire.co.uk/investment-trust-insider/news/trust-watch-majedie-makes-a-big-impact-on-edinburgh/a1501838

Interesting podcast, a pretty bullish outlook on earnings from Tom Buckingham:

Richard is joined by Tom Buckingham, the portfolio manager of the JP Morgan European Income Investment Trust to discuss the aims and objectives of the trust, top holdings and coping with the volatility of a global pandemic.

https://soundcloud.com/interactive-investor/tom-buckingham-the-richard-hunter-interview

My own portfolio, while it has some dividend yield, is not geared towards that goal. Many people invest in ITs however with income a primary consideration.

Investment Trust Annual Reports are always worth reading, as over multiple years they can give great insight into the IT. Even if you don't dig into the numbers and just read the various reports, you will learn loads.

Even if you don't own them or imminently plan on investing, the commentary from the chairman and investment managers can be really useful and educational as they often comment and give their opinion on the economy and the wider market.

North Atlantic Smaller Companies (which I hold) just published their annual report for the year ended 31 Jan 2021. It can be read in full here: https://www.londonstockexchange.com/news-article/NAS/annual-financial-report/14970788

Christopher Mills runs NAS and has done so forever, and has been extremely successful. His comments from the Annual Report are worth reading:

investment manager's report
quoted portfolio UK
The year was very much a game of two halves. Substantial losses in the period to 31 July 2020, followed by a substantial recovery through to 31 January 2021. The Company was badly impacted through its exposure to leisure related stocks and in particular the fall in Ten Entertainment and Stobart Group resulted in a net loss to the Company of approximately £30 million, as key parts of their business were forced to close.

Fortunately, this was more than offset by the relatively high weighting in Life Sciences with Ergomed (prior to sale), EKF, Renalytix and Verici DX all performing notably well and collectively adding nearly £90 million to the NAV. Augean and Polar Capital rose modestly but the gain was offset by a fall in MJ Gleeson.

Smaller holdings such as AssetCo, Sureserve and Signature Aviation performed well and other holdings such as Frenkel Topping, Bigblu Broadband, Tribal and Benchmark made modest progress.

Finally, it is pleasing to note that both Oryx International ("Oryx"), our largest holding, and Odyssean Investment Trust, outperformed their benchmarks, in Oryx's case by a significant amount.

quoted portfolio USA
The portfolio remains relatively modest and had no major impact on the net asset value of the Company.

unquoted portfolio UK
Source Bioscience (previously Sherwood Holdings) went public during the period and with accrued interest is estimated to have added in total approximately £9 million to the net asset value. Hamsard was also written up but the impact was offset by the need to write down Specialist Components due to weak orders resulting from the COVID Pandemic. Viking was also written up modestly with further gains expected in the current year as the business hopefully enters a liquidity event.

Finally, it was necessary to write down Jaguar Holdings Group an inflight catering business as demands for its services collapsed due to COVID impact on the airline industry.

unquoted portfolio USA
The standout performer of the year was the IPO of Telos in the fourth quarter. In January 2021, the ordinary shares were valued at little over £1 million. With sales following the IPO of over £20 million and with the balance of the publicly listed shares worth over £5 million the investment made an outstanding contribution to the Company's performance in the year to 31 January 2021.

Performance Chemicals suffered due to the weak oil price but remained EBITDA profitable. Coventbridge and Utitec made modest progress again impeded by COVID issues. We do however expect liquidity events from both the investments in the current financial year which will boost both cash reserves and the net asset value.

liquidity
Cash and US treasury bills started the year at £82 million and fell initially as opportunity was taken to invest in companies where we believed there had been an overreaction in the share price compared to the intrinsic value of the business. Most recently however, the IPO of Source, the partial sale of Assetco, the partial sale of Signature following multiple ongoing bids and the sale of most of the Telos position has resulted in cash and US treasury bills at the end of January 2021 nearing £89 million. This is expected to increase still further as the balance of the Telos and Signature Aviation positions are realised.

Your Managers are constantly reviewing potential investment opportunities but markets have had a major recovery and in our opinion are running ahead of fundamentals even assuming a full vaccine roll out over the course of the coming year.

Christopher Mills
Chief Executive & Investment Manager

10 May 2021

Mills sounding a warning bell, the general consensus seems to be that the "covid recovery" has a long way to run, in the UK in particular, but he is not having it. I suppose it explains what he is holding such a large amount of the portfolio in cash/cash equivalents.

Capital Gearing Trust quarterly report also worth reading, lots on inflation and the road ahead: https://www.capitalgearingtrust.com/sites/cgt/files/literature/Factsheets/CGT_Quarterly_Report_Mar_2021.pdf

Ruffer Investment Company (RICA.L) April report published today, more again on inflation: https://www.ruffer.co.uk/-/media/Ruffer-Website/Files/Fund-reports/RIC/2021/2021-04-RIC-fund-report-Apr2021.pdf

During April, the Company’s net asset value appreciated by 0.9% and the share price rose by 0.5%.
This compared with a rise of 4.3% in the FTSE All-Share total return index.
After one of the worst quarters for US bonds this century, and the steepest fall in the Barclays Long
Treasury Index in 40 years, it was inevitable there would be some form of pause. Having peaked on 31
March at 1.74%, the US 10 year bond yield finished the month at 1.63%. This move lower boosted the
performance of the Company’s positions in gold and inflation-linked bonds. Earlier this year, gold had
been doubly punished by the combination of rising yields and a rallying US dollar, but two recent
tactical changes in the portfolio’s asset allocation have helped performance. First, we added to bullion
and selected gold mining equities during March and April, having reduced gold exposure last summer
in anticipation of a reflationary shift in markets ahead of the vaccine announcements in November.
Gold-related investments contributed 50bps to performance during the month. Secondly, we took
profits in some of the interest rate options that protected the portfolio so effectively as bond yields rose
during the first quarter of 2021, thereby allowing us to capture some of the rebound in inflation-linked
bonds. This combination of index-linked bonds, gold and interest rate protections, having been
essentially neutral during the first quarter, contributed positively as US bond yields receded.
So, where next? Was April a pause for breath before a further move higher in yields and
consequent move lower in bond prices? We think so but there will be an important shift in emphasis –
we have probably seen the end of US reflation in isolation. The next leg down for conventional bonds
will probably be driven by positive growth surprises from Europe, as the continent sees a sustained
pickup in vaccination rates and starts to exit from lockdown. At the same time there appears to be
growing political support for meaningful fiscal policy deployment in the coming months. This is a
playbook we have already seen, except the baton is being passed from the US to continental Europe. It
was instructive that the German 10 year bund yield rose 9bps over the month, in stark contrast to the
moves seen in the US.
The Company’s index-linked bonds, which we reduced slightly through sales of US TIPS during
April, are shielded by interest rate options so they retain their inflation protection, but are buttressed
against the powerful economic rebound we expect to see through 2021. Our equities remain
concentrated in economically sensitive and cyclical companies. This equity bias, combined with
protection against rising nominal bond yields, means the Company is positioned for reflation, but still
protected from inflation. In a world where fiscal policy dominates, inflation is the risk all investors
should be guarding against. But conventional portfolios, hamstrung by the fallacy of benchmarks, are
pointing in the wrong direction. They back-test well in the disinflationary world of the last 40 years,
but are institutionally wired to the assets that performed well in the last market regime rather than to
those opportunities which exist in the new one.

Robson99

How often do Investment Trusts change there discount / premium values and is there any handy place to follow same ?

jams100

Bought MPU today, my first REIT. (Don't know a whole lot about REITs but I've been following this one for a while and I like the sector they are in, its a sector that should be relatively recession proof and a 5% dividend. (Very much a long term hold).

Medical Properties Trust, is a real estate investment trust (REIT). The Company focuses on investing in and owning net-leased healthcare facilities across the United States and selectively in foreign jurisdictions. The Company's segment is its investments in healthcare real estate, including mortgage and other loans, as well as any equity investments in its tenants. The Company acquires and develops healthcare facilities, and leases the facilities to healthcare operating companies under long-term net leases. The Company makes mortgage loans to healthcare operators collateralized by their real estate assets. The Company owns hospitals with approximately 390 facilities and approximately 42,000 licensed beds in eight countries, across three continents.

Robson99

Robson99 wrote: »

How often do Investment Trusts change there discount / premium values and is there any handy place to follow same ?

Well the share price just trades and changes on the market as normal. The NAV is updated/released by the IT. Some ITs release this daily. The premium/discount listed on websites can be an estimate pending confirmation of the NAV.

The best place I have found is the AIC website. You can view the premium/discount on the ITs page, or, if you sign up there and create a watchlist you can view the premium/discount of the ones you are following in the one table.

You can also see and sort all ITs from discount/premium low to high or high to low on the page below: https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false

bcklschaps

Am I right in observing that Scottish Investment Trust (SMT. L) is down about 16% in the last 2 weeks?

bcklschaps

bcklschaps wrote: »

Am I right in observing that Scottish Investment Trust (SMT. L) is down about 16% in the last 2 weeks?

Yes you are I'm afraid. Since its high in February it is down about 22%.

Monks is down about half that.

https://www.proactiveinvestors.co.uk/companies/news/949106/scottish-mortgage-suffers-a-few-slings-and-arrows-949106.html

Shedite27

Has anyone done any research on the free ETF's with Degiro?

The Vanguard S&P500 tracker for example, has a 0.07% AMC (annual management charge) and Degiro offering them free means there's no transaction charges or no stamp duty.

The downside is that they're liable to 41% CGT rather than 33%

I suspect the stamp duty and transaction costs probably balance out. Could someone with access to a Scottish Mortgage see how much it would cost to invest €1000in SMT, what stamp duty, commission etc would be added to that.

Shedite27

Shedite27 wrote: »

Has anyone done any research on the free ETF's with Degiro?

The Vanguard S&P500 tracker for example, has a 0.07% AMC (annual management charge) and Degiro offering them free means there's no transaction charges or no stamp duty.

The downside is that they're liable to 41% CGT rather than 33%

I suspect the stamp duty and transaction costs probably balance out. Could someone with access to a Scottish Mortgage see how much it would cost to invest €1000in SMT, what stamp duty, commission etc would be added to that.

Important to note that 41% is NOT CGT as normally it would be viewed. ETFs are subject to deemed disposal which means that every 8 years you have to pay 41% tax on any "profit" even though you have not sold anything to get that profit in hand. This hammers compounding.

So, lets say you invest €1,000 today in an ETF, and in 8 years it is worth €2,000. You would have to pay €410 whether or not you sell. Lets say you keep holding and by year 10 it drops back to €1,000 and you sell. You have "lost" €410 and you have to go to the trouble of claiming this back from Revenue.

In the same scenario with an IT, you just break even and don't have to pay anything (save for stamp duty/commission), and if you did sell it is just 33% on exit.

Lets say with the ETF it plunges to a 50% loss after 1 year and you sell it all. You have made a loss, and thats it.

In a same scenario for an IT you can report that loss and carry it forward to offset against future CGT bills.

As for SMT, you pay whatever commission is for your broker, plus 0.5% stamp duty.

I have not done all the sums but I would find it hard to believe that not paying commission or 0.5% stamp duty would make up for paying an extra 8% tax, and also be wort all the extra admin and loss of ability to carry losses forward etc.

Shedite27

Erica Breezy Concrete wrote: »

Important to note that 41% is NOT CGT as normally it would be viewed. ETFs are subject to deemed disposal which means that every 8 years you have to pay 41% tax on any "profit" even though you have not sold anything to get that profit in hand. This hammers compounding.

So, lets say you invest €1,000 today in an ETF, and in 8 years it is worth €2,000. You would have to pay €410 whether or not you sell. Lets say you keep holding and by year 10 it drops back to €1,000 and you sell. You have "lost" €410 and you have to go to the trouble of claiming this back from Revenue.

In the same scenario with an IT, you just break even and don't have to pay anything (save for stamp duty/commission), and if you did sell it is just 33% on exit.

Lets say with the ETF it plunges to a 50% loss after 1 year and you sell it all. You have made a loss, and thats it.

In a same scenario for an IT you can report that loss and carry it forward to offset against future CGT bills.

As for SMT, you pay whatever commission is for your broker, plus 0.5% stamp duty.

I have not done all the sums but I would find it hard to believe that not paying commission or 0.5% stamp duty would make up for paying an extra 8% tax, and also be wort all the extra admin and loss of ability to carry losses forward etc.

My instinct is that I agree with you, but just want to see what the maths work out at. I'm happy to the comparison if someone can get the costs of buying the trust.

Shedite27

Shedite27 wrote: »

[/B]My instinct is that I agree with you, but just want to see what the maths work out at. I'm happy to the comparison if someone can get the costs of buying the trust.

I think it would work out like this on Trading 212 (no commission).

£1,000.00

Stamp Duty = 0.5%= £5.00

On other brokers it depends on the commission set up

Short write up on Capital Gearing Trust, sharing mainly for the useful graphic:
https://www.thisismoney.co.uk/money/investing/article-9556827/CAPITAL-GEARING-Trust-getting-ready-slump.html

'It's unique,' says Spiller of the investment trust.

'Only once has the trust's share price fallen over the course of a calendar year – 2013 – and every year we strive to reduce the fund's costs.

'Fees are important because investment returns generally will not be great going forward.' The fund's annual charges currently total a modest 0.58 per cent.

Spiller is concerned that equity markets are heading for a 'considerable' correction, although he's unsure when this will happen.

'All the indicators suggest markets are overvalued,' he says. 'They could fall a long way.'

Useful article for those who think they may have too much Growth orientated/Ballie Gifford

https://www.investorschronicle.co.uk/ideas/2021/04/26/do-we-have-too-much-with-baillie-gifford/

About 85 per cent of your investments, excluding cash and property, are exposed to a high-growth/momentum equity style. This is concerning from a risk management perspective because your investments are an extremely concentrated style bet.

I am not trying to impose a regime change. Rather, I believe that you have a portfolio construction design flaw which exposes you to an extreme vulnerability in certain scenarios – irrespective of the merits of individual investments.

If there was a severe reversal of the growth/momentum investment style's outperformance, following a raging bull decade for investments with these characteristics, you could be exposed to a potentially catastrophic outcome. Extremely popular stocks with lofty expectations and high price tags potentially have the furthest to fall if anything threatens their dominance. And many of these stocks are high-risk – something easy to forget during periods of easy money.

Such an outcome may not occur but, like any other, can never be ruled out. Otherwise there would be no need to diversify. And if it does occur, your retirement plans are in the firing line.

Essential reading on Scottish Mortgage:

Results for year ended 31 March 2021 (their best year ever). Read in full here: https://www.londonstockexchange.com/news-article/SMT/preliminary-results/14974849

Managers Commentary below:

Managers' Report

We are focused on the long term. We do not believe that our returns in any given year convey much information about the strength or otherwise of our investment approach. Far longer periods are required to make such an assessment. We would caution against elation after the past twelve months just as we would counsel against misery following unprofitable years. To create long term value, we seek companies pursuing big opportunities and investing in projects with uncertain payoffs. Their shareholders will need to hold their nerve, take the long view and offer thoughtful ongoing support. We aim to be one of those shareholders. It is the accomplishments of the entrepreneurs running our holdings that drive underlying wealth creation.

The past twelve months have offered some lessons for the long-term investor. The strength of stock markets in a period of such economic and social hardship highlights the tenuous link between economic predictions and share prices. Even if one believes that the time and effort spent predicting the outputs of a complex system such as the global economy are worthwhile, one ought in any case to be cautious about linking that to the prices for individual securities or for stock markets as a whole. Conversely, there are many quite predictable trends in communications, computation, machine learning, energy generation and storage, gene sequencing and synthetic biology that, as they compound over time, can have a huge impact. The vaccine developments that are allowing us to emerge from this crisis are just one example.

A small number of big winners have a dramatic impact on investment returns. It is not an anomaly that Tesla has contributed so much to the portfolio this year. It is a predictable consequence of the structure of stock market returns. You no longer need to inhabit the arcane world of investment to understand such results. Another example is all too familiar: the spread of Covid-19. The likelihood that you will suffer from the usual human ailments doesn't change much from year to year. That is not true for a virus: the more people who have it, the more will get it. It scales in a non-linear way. It can quickly achieve a prevalence that is unfathomable to those outside the world of infectious disease. Most stock prices don't change much from year to year either but the outliers grow with the same underlying maths as viral spread. Success often begets success and economic advantage accrues highly unequally. Most financial theorists ignore this inconvenient fact, but our approach is designed to capture the outsized impact of such companies.

Changes that were already underway in our society have been accelerated by the impact of Covid-19. This makes it an especially challenging time for those that embrace the concept of mean reversion. We hope we can look forward to normality returning in the year ahead, but 'normality' does not mean that things will return to the way they were before the pandemic struck. Whilst the basic tenets of human nature are unchanging, the ways in which we work, consume and socialise are not. Lockdown restrictions over the past year have triggered a reappraisal of historical habits and rituals and many will be superseded. This creates opportunities for entrepreneurs; it changes supply chains and drives demand for new products and services.

Scientists had been clear about the potential for a global pandemic for some time, but their warnings had not prompted the necessary preparation. The apathetic response to similar scientific warnings about climate change ought now to be questioned. While we hope that lessons will be learned by our institutions and governments, we can also take inspiration from the leadership that the corporate sector has shown in delivering us from Covid. As with vaccines, so with decarbonisation; the value that Tesla has created by addressing the need to decarbonise has forced a hostile investment community to reconsider its position. Tesla has become one of the world's largest companies as its highly-rated products have continued to improve, along with its ability to manufacture them at scale. Other companies are now following, and history tells us that the more generous funding environment that has ensued is a prerequisite for further progress. Over the course of the year we sold around 80% of our Tesla shares as we strived to maintain appropriate diversification and to focus on the long term return potential. It remains a large holding. The head start it has on competitors leads us to believe that it could enjoy a long period of comparative advantage. If it can realise the potential of its AI capabilities and make its fleet largely autonomous, then this advantage will be greater still.

We are focused on finding other companies that will build the post-carbon economy. This year we took a new holding in Northvolt, a company led by a former Tesla engineer, which is aiming to become Europe's largest supplier of batteries for electric vehicles. It is investing heavily in the face of strong demand. We also took a holding in ChargePoint, which is one of the world's largest electric vehicle charging networks. The way in which we will charge our electric vehicles will not resemble the model we used for gasoline cars. Instead, parking spaces at home, in the workplace and in parking lots will provide energy. Software will play a critical role in managing this infrastructure.

The broader field of transport and logistics is throwing up a number of exciting investments. We have grown accustomed to having more products delivered to us at home. With scale, companies are building out the capabilities to serve us faster and more efficiently with a rapidly growing selection of products and services. Meituan in China and Delivery Hero in South East Asia now have the order frequency and distribution infrastructure to move beyond prepared food and into grocery and convenience offerings. Doordash, is doing something similar in the US. Meanwhile, we have purchased holdings in Ocado and GoPuff. Ocado's grocery offering is performing strongly and profitably in the UK and there is increasing interest from grocers around the world in implementing its technology. GoPuff is seeking to replicate the traditional convenience store with a delivery offering which has proved popular on US university campuses and is expanding into a more general setting.

Within our investment horizon, it is likely that these companies will start transitioning from human to robot delivery. Zipline has refined the performance of its autonomous fixed-wing aircraft while delivering medical supplies in sub-Saharan Africa. It is now launching in the US and delivering a broader range of products. Meanwhile we have taken a new holding in Nuro which is developing ground-based autonomous delivery vehicles for last mile delivery which should help to further reduce the cost of home delivery.

From transporting goods to transporting people: in the course of the year both of our flying taxi holdings, Lilium and Joby, took advantage of the buoyant funding environment to embark on a course to the public markets. Substantial capital is required for certification to carry passengers, so large rounds of funding are important. We are sceptical that the accompanying public listing is the right structure to provide long-term support for these companies at this stage of their development.

Many of us have marvelled at SpaceX's achievements as it has increased its pace of reusable rocket launches and sent the first astronauts to orbit in a commercially-built craft. SpaceX has ushered in a new era of dramatically lower launch costs which is spurring innovation and experimentation. Satellite communication will be one of the first applications but many more are likely to follow. We have continued to build up our holding in SpaceX. We have also initiated a new position in a smaller rocket company, Relativity Space, which is aiming to reduce launch costs for smaller payloads using 3D-printed rockets.

Back on earth, we think the application of modern technology to healthcare offers some of the most exciting investment opportunities for the next ten years. We took a new holding in Moderna, which develops and produces RNA-based therapies. It became a household name through the success of its RNA vaccine for Covid-19, but the technology's potential is far wider. Moderna bears resemblance to a software company. It writes RNA code to programme human cells and enjoys an attendant scalability in its business model. Its success with coronavirus helps to de-risk other drugs in its vaccine pipeline. The company is seeking to address a much broader swathe of diseases and its transition from a clinical to a commercial-stage company improves the odds of success.

Recursion and Tempus are applying the cutting edge of existing IT more directly. Recursion is building a new model for drug discovery driven by machine learning and experimental biology at an unprecedented scale. It has automated the role of the scientist at the laboratory bench and is able to do millions of experiments per week. It is testing a huge library of compounds on many different disease states in human cells and using machine learning to process the output. This is already translating into new therapies. Tempus is sequencing the tumours of cancer patients and matching that genetic information to medical health records, creating a vast repository of accurate healthcare data. It is applying machine learning to this data on behalf of physicians to determine the therapies that are most likely to be successful for patients, based on individual circumstances. This approach has the potential to transform how cancer is treated.

The Trust's exposure to China grew over the course of the year. Our largest holding, Tencent, has navigated a difficult regulatory backdrop and is executing well in its core business. In addition, its management team ought now to be considered some of the world's greatest investors. Over the past decade they've used their cashflows to build a portfolio of both public and private investments worth close to U$200bn. The pace of innovation at scale in China now exceeds anything we can find in the rest of the world. Pinduoduo was founded in 2015 and has already overtaken Alibaba's audience size in online commerce with more than 750m users. Meanwhile, the world's most valuable private startup, ByteDance, dominates China's online advertising landscape less than a decade after its founding. We added to most of our Chinese positions through the course of the year as well as taking new holdings when we have seen new breakthrough companies emerging. Less encouragingly, the planned IPO of our private holding in Ant International was pulled as a result of regulatory intervention. Ant and its parent, Alibaba, have a long history of occasionally tumultuous but eventually good relations with regulators and we expect that they will defuse these tensions over the months ahead.

We sold out of our holdings in Facebook and Alphabet (the parent company of Google) as well as making reductions to Amazon. These companies generate prodigious cashflows and have grown at a remarkable rate. For us, the questions now are around how they deploy their resources in the future and retain their growth credentials at vast scale. We think Amazon still enjoys the broadest set of opportunities, but we are wary that Jeff Bezos stepping back from the CEO role may reduce the company's appetite for bold experiments.

The competition for capital in the portfolio has been, and remains, intense. A process of renewal and change is creating new growth opportunities across a wide range of industries and countries. We have been able to reinvest the proceeds from the big online network businesses into companies that are tackling some of humanity's biggest challenges in healthcare and decarbonisation. When large and evolving opportunity sets are matched with entrepreneurial companies and a determinedly long-term outlook, the conditions are ripe for exceptional growth businesses to emerge.

Tom Slater



Managers' Report


After many years of anodyne reviews perhaps some bluntness is permissible in this final and twenty second version. There's much that I have misunderstood and misjudged over the two decades but my ever-growing conviction is that my greatest failing has been to be insufficiently radical. To be blunt: the world of conventional investment management is irretrievably broken. It demands far in excess of the canonical 'six impossible things before breakfast' that Alice in Wonderland propounds.

Some Contentions

But let me start by trying to set out what I do believe. Hopefully it doesn't need saying that my successors should be suspicious of continuing to believe in these contentions for the next decades. As the world changes so should we. Indeed this is an appropriate point of departure. The investment world changed profoundly in the mid 1980's. It resembles that most famously described by Ben Graham, the apostle of value investing, paid homage to by Warren Buffett and perpetually embraced by the media, as little as Alice's rabbit hole described the reality of the late 19th century. To illustrate the change from the world in which a growth stock was defined by Graham as one able to double earnings in a single decade let's look at some more recent figures:

http://www.rns-pdf.londonstockexchange.com/rns/4606Y_1-2021-5-12.pdf

I'm sure that many of you will recognise these numbers as the annual revenues of Amazon. They rather understate progress as the accounting for third party fulfilment is conservative. But we still have a compound growth rate of 41% per annum for over two decades. For those, like Graham, who prefer the bottom line then 2020 produced $31bn in free cash flow. This pattern of sustained growth at extreme pace and with increasing returns to scale has become more and more evident since the emergence of digital technologies as first exemplified by Microsoft (still growing after 35 years as a public company).

It is in these extremes that investing resides. Despite what the CFA foists on the young and innocent you cannot choose a level of risk and return along a classic bell-curve to suit your portfolio because that is neither accepting the deep uncertainty of the world nor acknowledging that the skew of returns is so extreme that it is the search for companies with the characteristics that might enable extreme and compounding success that is central to investing. But distraction through seeking minor opportunities in banal companies over short periods is the perennial temptation. It must be resisted. This requires conviction. The share price drawdowns will be regular and severe. 40% is common. The stock charts that look like remorseless bottom left to top right graphs are never as smooth and easy as they subsequently appear.*

So how do we identify these stocks with extraordinary potential? How do we acquire the conviction to allow the compounding to work its magic? As Jeff Bezos steps down as CEO let's look back at what we spotted, how we endured and what we failed to do for shareholders. The common factors that are most likely to recur in the narratives of great investments are that the company should have open-ended growth opportunities that they should work hard never to define or time, that it has initial leadership that thinks like a founder (and almost always is one) and that has a distinctive philosophy of business - almost always from independently thought through first principles. Now, I think that all these traits were identifiable in Amazon from the start. To read the initial shareholder letter of 1997 was to know that this was the ambitious, patient creation of a very special mind. To be frank our failure to recognise this was because of our own limitations not an absence of clues. We were simply too aware of market movements and too preoccupied with the terrible combination of short-term performance and fear of downside to be able to be committed owners. By 2005-6 we were less bad investors and could recognise some of the potential and endure more of the slings and arrows. Of those there were plenty: the share price fell 46% from peak to trough in 2006. I became used to peers at client conferences declaring Amazon their favourite short. They particularly disliked the costs of two projects - Prime and Amazon Elastic Compute. The latter became AWS. Gradually we learnt and understood. But we should apologise for our willingness to trim Amazon back repeatedly when our holding size approached 10% of assets. That was misguided. Only in recent months has our enthusiasm waned. Amazon is now seen as good value, safe and acceptable. It no longer has a founder CEO. We fear that in his inimitable terms it is no longer Day 1 in Seattle though the road ahead is still long and profitable.

Time Frames, Likelihoods and Radical Uncertainty

The litany of reasons to be obsessed with long-term decision making is too long to describe here. But there's an offshoot of it that seems unusually important yet neglected. It is inherent to the notion of efficient markets that all available information is incorporated in share prices. Only new information matters. This is used to justify the near pornographic allure of news such as earnings announcements and macroeconomic headlines. In turn this is reinforced by the power of near-term financial incentives

So far this is a standard critique. We share it but there is a twist to come. If you believe that all information is built into the share price and simultaneously that it is near term investment outcomes that matter this leaves a vacuum of thought. There is no apparent rationale for deciphering the future. If this sounds abstract it's not so. Let's take a look at Tesla to illustrate the puzzle. When we first invested in the company seven years ago we thought, or rather observed, that the regularity and pace of improvement in battery performance and of learning in building electric vehicles was already clear in practice and well-elucidated in academic study. Since then both the pace of improvement and the level of confidence surrounding the data has risen consistently. This made it as close to inevitable as investing allows that at some point electric vehicles were going to be better and cheaper than the internal combustion engine - quite aside from environmental issues. That's simply what happens when a 15% plus improvement rate meets a 2-3% snail

Since Tesla was the only substantial Western player our investment decision was hardly demanding. We just had to listen to experts and wait. But most investors do not listen to experts. Instead they listen to brokers and the media, besotted as it is by fear mongering and the many short sellers. The headlines tell them that next quarter will be hard for Tesla and that Elon Musk is outspoken. To us this was a blatant market inefficiency offering an extraordinarily high likelihood of high returns to the patient. All too many investment decisions are marginal judgments. That electric vehicles would win had become intensely likely. We needed no insight, no clever model to spot it - only patience and trust in experts and the company. The uncertainty was elsewhere. It was elsewhere geographically - given the levels of competition in China it was profoundly uncertain that our investment in NIO would flourish or even survive. It was elsewhere in return calculations for Tesla itself. This particularly applies now and to Tesla's autonomous driving ambitions. This could transform the economics of the company. But try though we do it seems implausible that we can estimate either the likelihood of success in a radically new endeavour nor the precise outcomes in cash-flows should success emerge. To us it is bizarre that brokers, hedge fund mavens and commentators can claim to be able to decipher the future and assign a precise numerical target to the value of Tesla. Perhaps they are all geniuses. We are not. We should respect and endure uncertainty, try to identify where extreme upside might occur and observe patiently.

It's Not Growth versus Value

Tesla is but an example, if a crucial one, of the central issue for investing in our times. It isn't growth versus value, it isn't the level of markets, it isn't the economic growth rate in 2021 or the progress of the pandemic but it is understanding change, how it happens, how much happens and its implications. The refusal to embrace this is probably a reflection of the doomed desire for security but it is also emblematic of a broader crisis in economic thought that is preoccupied with the mathematics of equilibrium. But If we switch our attention to studying deep change then there is less temptation to believe that investing has eternal verities that we can default to as a rule book. It's not 'this time it's different' that is the cry of danger but the refusal to admit that the world, and its reflection that is investing, is ever the same. The only rhyme is that in the long run the value of stocks is the long-run free cash flows they generate but we have but the barest and most nebulous clues as to what these cash flows will turn out to be. But woe betide those who think that a near term price to earnings ratio defines value in an era of deep change.

The Future

There will almost certainly be more wrenching, inspiring and dramatic change in the next decade than we have ever seen. I'm very envious of the opportunities and experiences that my successors will enjoy. Even in the last year, amidst the tragedies of the pandemic, there have been hints of what is to come. I don't mean the surge in digital platforms that helped to navigate the constraints of the pandemic but still more dramatic and important rising forces. From the extraordinary revolution that will transform our societies for the better in renewable energy becoming mainstream to the emerging wonders of synthetic biology to the possibility that healthcare innovation becomes a regular series of beneficial revolutions rather than a complex and frustrating drain of resources the potential is wonderful and the threat to old empires looms. It would have been hard for us to have educated ourselves in these areas of unashamed excitement without our involvement in venture capital. We are forever grateful that we have found our way to interact with the extraordinary minds and energies in the unquoted world. Frankly, five years ago I would have been amazed at the access and opportunities that we have come to take as normal. We are very fortunate. It's a privilege. Our former Board member, John Kay, taught us many things but one of the most valuable was the role of obliquity. By engaging with visionary minds and their companies we are simply seeking insight into the world of tomorrow. Often we are overwhelmed and puzzled more than comprehending. That's the plan. The investment outcomes are but the eventual outcomes of the mentality and process.

We need to remain eccentric. In fact we need to become more so and more prepared to be radical. We've always claimed to learn from the remarkable leaders we are lucky enough to meet in managing Scottish Mortgage. If I may I'd like to end by quoting two of them. The first is Noubar Afeyan, founder of Flagship health investors but also Chair of Moderna. A year ago I would at this point have needed to detail the purpose of Moderna but that is now delightfully redundant. But the comment I want to quote applies far beyond Moderna and vaccines:

"Let me say maybe something stark…which is that we have to be willing to embrace unreasonable propositions and unreasonable people in order to make extraordinary findings because the notion that utterly reasonable people doing utterly reasonable things will produce massive breakthroughs doesn't compute to me".

There is no industry more suspicious of the unconventional than fund management. We need to reinvent from first principles. We need to help create great companies that embrace the extraordinary. Plainly no one has been better at demonstrating and articulating this than Jeff Bezos. His recent, and sadly last, CEO letter concluded with a plea:

"We all know that distinctiveness - originality - is valuable…What I'm really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical - in a thousand ways, it pulls at you. Don't let it happen".

I don't think Tom and Lawrence need this advice, or would neglect the views of Mr Bezos. But please help Scottish Mortgage become more unreasonable and more distinctive as the pressures of the investment world continue to pull at us.

James Anderson

Shedite27

While 99% return is ridiculous, March 31st 2020 to March 31st 2021 was almost literally Trough to peak. Nasdaq returned 73% in that period. I'd imagine they were struggling like the rest of us if they'd included the 2 months before and after that period.

Shedite27

Shedite27 wrote: »

While 99% return is ridiculous, March 31st 2020 to March 31st 2021 was almost literally Trough to peak. Nasdaq returned 73% in that period. I'd imagine they were struggling like the rest of us if they'd included the 2 months before and after that period.

I just checked, January 2020 to today is a 90% increase! :eek:

Shedite27

I did some Maths on the IT versus S&P fund.

For charges, you're right, IT's are cheaper even with the management charges included.

I guess the question is whether IT's can continue to outperform the market. I'm sure we've all heard of Buffet's famous bet with fund managers. The Scottish Mortgage one seems to be 0.3% fund management charge anyway which is very competitive. Some of the bigger funds in the US and Irish market would be taking 1-2%

Certainly after a few months like we've just seen on the stocks it definitely makes you wonder if all the effort and reading people like myself are doing is worth it at all.

Shedite27

Shedite27 wrote: »

I did some Maths on the IT versus S&P fund.

For charges, you're right, IT's are cheaper even with the management charges included.

I guess the question is whether IT's can continue to outperform the market. I'm sure we've all heard of Buffet's famous bet with fund managers. The Scottish Mortgage one seems to be 0.3% fund management charge anyway which is very competitive. Some of the bigger funds in the US and Irish market would be taking 1-2%

Certainly after a few months like we've just seen on the stocks it definitely makes you wonder if all the effort and reading people like myself are doing is worth it at all.

If everything was taxed the same probably the largest part of my portfolio would be in broad indexes and the remainder, a decent chunk, in defensive, value and illiquid asset ITs.

Regarding Buffets bet, that was a bet that was against hedge funds.

Buffet himself and Berkshire, certainly the equity side, can be viewed like an investment trust. They are not daily buying and selling equities likes some fund managers. Even Scottish Mortgage aim to hold positions for five years.

Personally, I think there is a good chance that IT managers will continue to beat their indexes, or at least not lag them by much. I suppose it is a bit of a riskier gamble than broad etfs, you might beat the index, or you might lag it. There is a great argument that if you are younger and can afford the risk, ITs are a better choice. But open ended funds have disadvantages too, even aside from the tax considerations that make them a non runner in Ireland.

Personally, I do not have any confidence in my own ability with my modest funds to pick specific stocks, nor do I have the time to become an expert. I do know what type of investing appeals to me, and I know enough to (hopefully) identify investment trusts which align with my own philosophy and have managers, experts, who are better than I will ever be. I mean, if I decide I want to invest in Japan, or Britain, with a value style because I think their markets are undervalued, what basis do I have to think I would do better than the managers of AGT, or Temple Bar, or someone like Christopher Mills (North Atlantic)? But it is not about blind trust.

In my head I am likening it to getting a builder in. There is no way I could build my house myself, but I can learn enough about construction to know what is "right". I can know enough to know what questions I need to ask and know if the answers are bullsh!t or not. I can look at enough previous houses he built and know what to look out for. I know enough to identify if the builder has the appropriate qualifications, insurance, permits etc. If I can identify a builder with 20 years experience, loads of happy customers, great references, the right permits, the right qualifications, can answer my questions and I'm happy with the answers, has the same architectural philosophy as me, knows what I want and has built similar loads of times before, why on earth would I think I could do better and try and build the house myself? Isn't the world of investing even more complicated than building a house?

daithi7

My issue with investment trusts is the same as with any active invest manager. Iirc research has shown that ~75% of active fund managers under perform the s&p over 5 years, with that rising to ~95% over 10 years. So really, you're better off with a cheap as chips index tracker that is tax efficient for Ireland.

If only such a thing existed.

Supercell

IT scanner, might be useful, some decent info - https://www.trustnet.com/fund/price-performance/t/investment-trusts?tab=fundOverview&IsTrustnetITSpecialistVct=false&sortby=P60m&sortorder=desc&pageSize=50&assetclass=EQUI%252CFXIN%252CHEDG%252CMXAS%252CCURR

daithi7

daithi7 wrote: »

My issue with investment trusts is the same as with any active invest manager. Iirc research has shown that ~75% of active fund managers under perform the s&p over 5 years, with that rising to ~95% over 10 years. So really, you're better off with a cheap as chips index tracker that is tax efficient for Ireland.

If only such a thing existed.

Well, that doesn't exist as you say

But, that research is generally about open-ended mutual funds, and not funds like Investment Trusts which have permanent capital:

Data from the Association of Investment Companies (AIC) has revealed investment trusts typically outperform open ended funds and passive investments.

The research shows the average investment trust has returned 1,955 per cent in the 30 years to the end of March 2018.

In comparison, the FTSE All Share has returned 1,196 per cent, the MSCI World Index has returned 944 per cent and the average open-ended fund has returned 919 per cent.

https://www.ftadviser.com/investments/2018/04/19/average-investment-trust-beats-open-ended-funds/

But it is worth pointing out that many Investment Trusts do consistently beat their benchmark index, over extended periods of time.

KevinK

Has anyone had any recent contact with DeGiro about investment trusts? A few months ago the situation was apparently under review but since then even more have been removed. JGGI still available but for how long I wonder..

IS IBKR the only option? Kind of put off by the $10 a month fee as plan would be to buy and few times a year and hold long term. Can see the fee eating into any gains

HillCloudHop

KevinK wrote: »

IS IBKR the only option? Kind of put off by the $10 a month fee as plan would be to buy and few times a year and hold long term. Can see the fee eating into any gains

I don't think ITs are coming back to Degiro for a long time, if ever. Trading212 is another option, but they haven't accepted new customers for months now.

I am afraid it is just Interactive Brokers for as long as trading212 are not accepting new customers.

On Etoro though I think one or two of the more popular trusts are available.

Happyhouse22

F&C Investment trust now back on DeGiro.

Very interesting I wonder if more will return/have returned?

KevinK

Happyhouse22 wrote: »

F&C Investment trust now back on DeGiro.

Very interesting I wonder if more will return/have returned?

JGGI also currently available (but not sure if it was ever removed)

Seems mad that they were ever removed. Did they ever say why? What are the fees like, £4 + 0.5% stamp duty?

Happyhouse22

Erica Breezy Concrete wrote: »

Seems mad that they were ever removed. Did they ever say why? What are the fees like, £4 + 0.5% stamp duty?

Paid €4.70 plus stamp duty for about €1,500 of FCIT today.