19 May 2016

Blog: Investment Trusts Seminar - A Short Summary

by Bruce Packard CFA | 19 May 2016

Capital Access hosted an investor seminar on the Investment Trust sector. Managers from six closed-end funds (Jupiter US Smaller Companies, Baronsmead VCT, Pantheon International, Apax Global Alpha & Highbridge Multi-Strategy Fund) presented on their strategies, followed by our keynote speaker, Gervais Williams, and a Q&A panel.

Robert Siddles (Fund Manager, Jupiter US Smaller Companies Fund)

Suggested that lower liquidity in small caps can magnify pricing inefficiencies, and generate outperformance for a skilled fund manager. Since January 2001 when he started managing the fund, it has increased by 220% in sterling terms, versus 139% achieved by the Russell 2000 index on the same basis.

Michael Probin (VCT Investor Relations Director, Livingbridge)

Explained the 2015 VCT rule changes, that the aim is to encourage investing in very early stage companies and that funding is used to drive organic growth. Over the last five years, the Baronsmead Venture Trust, Baronsmead Second Venture Trust and Baronsmead VCT 5 are up 67%, 60% and 72% respectively.

Andrew Lebus (Partner, Pantheon International PLC)

As a listed Private Equity company, Andrew argued that backing high quality managers in attractive sectors is the key to unlocking value. Over the last 5 years, the NAV per share is up 10.7% (assuming dividends reinvested) on an annualised basis, versus 5.7% for the FTSE All-Share on the same basis.

Sarah Wojcik (Investor Relations, Apax Global Alpha)

Highlighted how their four sector approach (tech, services, healthcare and consumer) should deliver 12-15% total return per annum. The company was listed on the LSE in June 2015 and was 95% invested by end of March 2016.

Nick White (Managing Director, Highbridge Multi-Strategy Fund)

Showed how a dynamic capital allocation process could generate consistent uncorrelated returns. Since Mark Vanacore took control of the fund in 2012, it has achieved 6.5% annualised returns. Importantly, during Nov 15 to May 2016 period, when the FTSE 100 maximum drawdown was 12.7% the Highbridge fund’s maximum drawdown was 1.6%.

Gervais Williams (Managing Director, Miton Group)

Presented a thought provoking argument in favour of active investing, particularly focused on small-cap stock picking. The growth model based on falling cost of debt and economies of scale has favoured large-cap stocks over the last few decades. Yet now large FTSE 100 companies are struggling to grow their top lines, cannot increase their margins and hence dividends of many large cap stocks are under pressure. Future performance is likely to come from companies that have room to grow revenue and/or can expand margins. If his framework is correct, small-caps are likely to enjoy relative and absolute performance.

Following the strategy presentations and Gervais’ keynote speech, a Q&A session took place with Simon Elliott (Winterflood Securities), Alex Denny (Fidelity) and chaired by Annabel Brodie-Smith (Communications Director, AIC).

Questions included issues of liquidity in the Investment Trust sector (size is a good proxy for liquidity, with around 2/3 of companies covered by Winterflood having a market cap greater than £100m). Private clients are still net buyers of Investment Trusts, while there is now increasing interest from the self-directed market which uses platforms such as Hargreaves Lansdown, Alliance Trust, Fidelity Funds Network and Cofunds.