Fund Profile

Securities Trust of Scotland 25 September 2019


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Securities Trust of Scotland. 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.

At the helm of the portfolio is Mark Whitehead – who joined the group as head of income in 2015, spearheading a resurgence on income for the trust. Mark employs an unconstrained, bottom-up approach to stock selection and has introduced a number of measures to boost the trust’s capacity to generate income, including the disciplined use of derivatives and the increased use of gearing. Additionally, the trust has the capacity to pay income from capital, helping smooth dividends regardless of the economic conditions.

Starting with an investable universe of around 3,000 stocks, meticulous analysis narrows the universe down to just 500 names. Particularly prevalent within the process is credit analysis and stress testing, where the manager examines a company’s free cashflow through different scenarios and in turn, their capacity for sustainable dividend growth. This is a particularly unique and important tool in the current volatile conditions where in the UK particularly, we have seen many of the highest yielders cut their dividends.

Since Mark’s appointment in May 2016, the trust has performed strongly relative to the peer group benchmark, outperforming both the IA and AIC Global Equity Income total NAV returns of 47.4% and 53.8% respectively over the same period. Alongside capital appreciation the trust has a progressive dividend policy, aiming to offer investors inflation-beating dividend growth. Currently the trust offers a solid yield of 3.2%.

The trust is trading on a discount of 4.3%, the second widest in the sector. This is despite the fact the trust has been the strongest performer in the seven-strong sector over the past year, and in the top three for the past five years.

Kepler View

Since taking over the portfolio in 2016, the returns for Mark and the team at Martin Currie have been strong. It is worth bearing in mind that this period has been difficult for income generating value managers, and the trust has still managed to outperform most peers.

We particularly like the emphasis on stress testing from the manager, and the use of previous recessions/corrections to understand the likely capacity to pay dividends. With a huge amount of uncertainty surrounding global markets, this should help give investors a level of comfort in the progressive dividend policy.

Trading at the second-widest discount in the sector, we think this offers an attractive entry point at this moment in time. The trust has outperformed every peer in the seven-strong sector over one month, six months and one year, and sits in the top three over three and five years. The trust offers a robust yield and the board has shown a clear willingness to stick to the progressive dividend policy.

bull bear
Increasingly impressive returns OCF marginally above sector average
Solid yield and a board committed to paying dividends Relatively volatile returns
Utilises the structural benefits of closed ended funds
Continue to Portfolio

Fund History

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 Flash update: Securities Trust of Scotland
We look at the recent change in management of STS and what it means for investors…
09 Dec 2020 Fund Analysis
STS has a new manager with a strong track record…
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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