Securities Trust of Scotland 25 September 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.
The team at STS aim to offer investors rising income and long-term capital growth through investment in a balanced portfolio of global equities.
Securities Trust of Scotland
Martin Currie Investment Management Ltd
Association of Investment Companies (AIC) Sector
Global Equity Income
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount) / Premium (Cum Fair)
Daily Closing Price
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.
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.
|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|