Fund Profile

Securities Trust of Scotland 23 January 2019


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by STS Global Income & Growth. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

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Securities Trust of Scotland (STS) is a broadly diversified global equity income portfolio that aims to deliver a rising level of income and long-term capital growth from a diversified portfolio of equities.

The trust has undergone something of a transformation in recent years, implementing a new progressive dividend policy which allows income to be drawn from capital, and appointing a new manager, ex-Sarasin star Mark Whitehead, who joined Martin Currie as head of income in 2016.

Since he arrived, Mark has built a strong team around himself – including the trust’s former lead manager Alan Porter – and put in place a rigorous investment process which sees potential investments put through a series of ‘tests’ designed to show how they will behave in unpredictable scenarios.

Mark employs an unconstrained, bottom-up approach to stock selection, starting with an investable universe of around 3,000 stocks, paying particular attention to credit analysis and stress testing to identify companies that can demonstrate strong free cashflow, which they believe in turn translates to sustainable dividend growth.

Since Mark’s appointment in 2016, the trust has produced returns largely in line with its peer group benchmark, up until the recent correction which saw the trust lag for stock-specific reasons. The trust offers a solid yield of 3.8% - putting it ahead of the majority of its peers in the AIC Global Equity Income sector in income terms.

At the time of writing, the trust is trading on a discount of -6.53%, well beyond the weighted average discount for the sector (-3.3%), where the large majority of other trusts trade close to par or at a premium, including some which have only marginally outperformed STS over recent years.

Kepler View

It is early to judge performance given Mark’s appointment two and a half years ago and the portfolio overhaul which accompanied it, but the trust has broadly kept pace with its peers (up until the recent correction). Further - on closer examination – it is clear that the range of returns delivered by the trusts within the AIC Global Equity Income sector is narrow; with only 3% between STS and the second best performing trust in the sector over one year. With this in mind, the current discount of -6.5% is attractive when other trusts in the sector – trusts which STS has outperformed – are trading on a premium. We note that JPMorgan Cazenove is overweight toward the trust in its recommendations.

Discount opportunity aside, we believe that the investment process is a key stand out for the trust. The focuses on credit analysis, stress testing and, in particular, ESG factors help to identify undervalued opportunities that other trusts may not pick up on.

Alongside this, the trust offers a robust yield and the board has shown a clear willingness to stick to the progressive dividend policy, after paying a small portion from capital this year. Additionally, in the current volatile environment, the trust should benefit from the option writing facility.

We like the focus on free cash flow and dependable earnings, and believe the trust has the capability to offer sustainable, long term dividends.


Rigorous and unique investment process
Expensive OCF relative to peers
Solid yield
Has not produced a particularly eye-catching performance relative to peers
Utilises the structural benefits of closed ended funds

Continue to Portfolio

Fund History

14 Dec 2023 Fund Analysis
STS’s balance between quality income and growth may prove resilient in a challenging economic environment…
06 Dec 2023 Fool's gold
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08 Jun 2023 Fund Analysis
STS’s focus on optimising the balance between quality income and growth may prove valuable in an uncertain market environment…
11 May 2023 Tipping point
Battered growth strategies have staged a comeback recently, but what happens now?
27 Oct 2022 Fund Analysis
STS’s high-quality global equity income approach has proven resilient over both the long and the short term…
11 Feb 2022 Fund Analysis
A high conviction, high-quality approach to global equity income investing…
09 Feb 2022 The dividend dilemma
We examine the trade-off between earning a current high dividend yield and growing future dividends...
09 Dec 2020 Fund Analysis
STS has a new manager with a strong track record…
09 Dec 2020 Flash update: Securities Trust of Scotland
We look at the recent change in management of STS and what it means for investors…
09 Jan 2020 Full house
The KTI team’s ‘top picks’ for 2019 have delivered strong results…
25 Sep 2019 Fund Analysis
Led by Mark Whitehead, STS offers an attractively valued portfolio of global equities...
03 Apr 2019 Nice guys finish first
We review the rise of ESG, its impact on investment trusts, and the various ways ESG has evolved in the trust world...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
23 Jan 2019 Fund Analysis
Securities Trust of Scotland (STS) is a broadly diversified global equity income portfolio offering a solid yield of 3.8%...
31 Dec 2018 Ladies, gentlemen and non-binary persons, start your engines…
With Britain only months away from the bright, sunlit uplands of Brexit and America officially ‘great’ again, we present our best ideas for what looks set to be a fascinating year…
29 Nov 2018 Fund Analysis
A broadly diversified global equity income offering with an above average yield of 3.8%, on a very wide discount relative to its peers...
02 May 2017 I'm not interested in 'me-too' portfolios...
We meet Martin Currie's head of income Mark Whitehead and ask how he is helping to shape the group's equity income strategy...
22 Feb 2017 Fund Analysis
22 Feb 2017 Into the wilderness
As the West heads deeper into uncharted territory, we examine the way in which global fund managers are positioning in the face of vertiginous valuations and seismic political change...
21 Feb 2017 Don't wanna be an American idiot
We highlight various routes to US exposure for those who are not sure how much faith they place in the 'Trump Bump'...
13 Oct 2015 Global funds for income, growth and stormy weather
We compare investment trusts and funds across five global equity sectors, and highlight four of the best...
13 Oct 2015 Fund Analysis
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