Scottish American, Menhaden Capital and Witan Pacific all underwent management changes in August, according to Winterflood Investment Trusts, which believes that not all of these are necessarily positive developments.
While it noted in its latest monthly report that these changes are common and often make little impact overall, Winterflood argued that it is important to keep a close eye on any management turnover.
“The growing trend to appoint deputy managers or adherence to carefully defined investment processes reduces the ‘key‐man’ risk,” it explained.
“However, we believe that it is important to monitor these appointments carefully as a new manager can result in important changes to funds.”
Of the three trusts that saw management changes in August, perhaps the most well-known of these is Scottish American (or SAINTS), following the departure of Dominic Neary from Baillie Gifford.
The global equity income trust – which has an AUM of £561m – was headed up by Neary since 2014, who was joined by deputy managers and James Dow and Toby Ross last year.
Over three years, the trust has outperformed its FTSE All World benchmark and average peer by 14.27 and 19.26 percentage points respectively with a total return of 64.82 per cent.
Performance of trust vs sector and benchmark over 3yrs
Source: FE Analytics
Now, Dow and Ross – who joined Baillie Gifford as analysts in 2004 and 2006 respectively – have taken over the helm of the trust as co-managers.
Winterflood said: “SAINTS has seen a considerable evolution over the last five years. While it retains its legacy property portfolio and can still invest in other asset classes, such as bonds, it is essentially a global equity fund, with an emphasis on income and growth.
“In our opinion this plays to the strength of the stockpicking abilities of Baillie Gifford and its considerable resource of investment managers and analysts.”
The firm explained that Baillie Gifford’s investment strategy tends to be collegiate and research-driven, which means stock ideas can be shared across teams.
“While many holdings within SAINTS are unique to the global income growth team, recommendations from other Baillie Gifford teams are also considered and we believe that the fund has been a beneficiary of this approach,” it continued.
“The global income growth strategy is also an important area for the firm and one to which it has committed significant time and resources.”
SAINTS is currently trading on a 5.3 per cent premium to NAV, is 18 per cent geared and yields 3 per cent. It has an ongoing charge of 0.87 per cent.
While Winterflood’s reaction to the aforementioned management change was positive, it is apprehensive regarding the management change of Menhaden Capital last month, following the resignation of .
Not only does this mean Vavalidis is no longer a partner of Menhaden Capital Management, he will lose his secondment to Frostrow Capital and his place on the investment committee.
The Frostrow Capital trust, which was launched two years ago, is currently trading on a 22.4 per cent discount to NAV.
“Ben Goldsmith and Luciano Suana will continue to carry out the day‐to‐day portfolio management activities of the fund, identifying and presenting investment opportunities to the Investment Committee, which is chaired by Graham Thomas and makes all investment and divestment decisions,” Winterflood analysts explained.
“Menhaden Capital Management LLP is ‘actively recruiting to further strengthen the team’.”
Since its launch, the £71.1m trust has lost 32.68 per cent compared to its IT Environmental sector average’s total return of 21.29 per cent.
Performance of trust vs sector since launch
Source: FE Analytics
It aims to provide long-term growth through genuine multi-cap exposure to businesses which will benefit from energy or resources efficiency. Examples of its largest individual holdings include solar energy equipment supplier X-ELIO and aeronautical product manufacturer Airbus.
“While the fund’s investment premise is interesting, so far the execution has been disappointing,” the team at Winterflood noted. The departure of Alexander Vavalidis, one of the three founding members of Menhaden Capital Management is not a positive development, in our opinion.
“There was no obvious impact on the fund’s share price following the announcement, although it is a small fund and highly illiquid. While the fund’s premise is long‐term thematic investing, we are growing increasingly unconvinced as to its long‐term future.”
Menhaden Capital isn’t geared and has an ongoing charge of 2.09 per cent.
The third and final investment trust to have undergone a management change in August, according to Winterflood, was Witan Pacific.
According to the research firm, it announced several changes to the line-up of its external managers: some 25 per cent of the trust is now run by Aberdeen Standard Investments compared to a previous 42 per cent, while Matthews International Capital Management’s 47 per cent management has been reduced to 40 per cent.
These reductions have made way for two new management teams. Dalton Investments will account for 10 per cent of the portfolio’s management while Robeco Institutional Asset Management will account for 25 per cent.
“Each manager will, as at present, manage a portfolio with the objective of outperforming the MSCI AC Asia Pacific Index (in sterling), which is the fund's benchmark,” Winterflood explained.
“The intention of the revised structure is to enhance the potential for outperformance by accentuating the emphasis on active portfolio management and stock selection in order to provide shareholders with exposure to a broad set of opportunities across the region.
“Although the managers each have mandates covering the entire Asia Pacific region, the revised mix is expected to increase portfolio exposure to smaller capitalisation or lesser‐known companies whose growth prospects have more chance of being underestimated by the market.”
Witan Pacific has an AUM of £233m and aims to provide both capital and income growth through a diversified portfolio of Asia Pacific stocks.
Over five years, it has returned 79.4 per cent which is a comfortable outperformance of its average peer but a 5.4 percentage point underperformance of its MSCI AC Asia Pacific benchmark.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
“Witan Pacific’s decision to appoint two new managers to its roster reflects a move for multimanager funds to identify managers with a higher active share and therefore a greater potential to outperform. There is also more of an emphasis on smaller or lesser known companies and less exposure to larger companies,” Winterflood’s research team said.
“Accordingly, the weighting to Aberdeen Standard Investments has been decreased from over 40 per cent to 25 per cent.”
It added: “We believe this makes sense on a couple of levels; it provides the fund with the chance of developing a stronger performance record, and introduces managers to the roster that UK‐based retail investors would struggle to invest in.”
While the team is unsure of the trust’s Asia including Japan mandate, it believes its new management changes should be welcomed as an attempt to increase the vehicle’s relevance.
Witan Pacific is trading on a 12.6 per cent discount to NAV, yields 1.5 per cent and has an ongoing charge of 0.88 per cent.