Fund Profile

Securities Trust of Scotland 09 December 2020

Disclaimer

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

Overview
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Overview

Securities Trust of Scotland (STS) has recently undergone a change in investment manager. No longer run by Mark Whitehead and the Martin Currie team, it is now in the hands of Troy Asset Management and will be managed by James Harries. James is lead manager of Troy’s Trojan Global Income Fund and investors should expect STS to follow a similar strategy, though it will ultimately retain its original objective: to achieve rising income and long-term capital growth.

James aims to invest in a manner conducive of capital preservation and income growth, through a bottom-up allocated portfolio of global dividend payers which balances quality, growth, and income factors. As we outlined in the Performance section, company analysis is done in collaboration with the broader Troy investment team but for a stock to be included into the strategy it has to fulfil James’s three criteria: durable competitive advantages, attractive business models, and strong management teams.

Since the launch of the Trojan Global Income Fund in November 2016, we have viewed its performance as being competitive with that of STS’ previous manager; despite the lack of gearing, the fund has returned 33% while STS generated a NAV return of 36.3%. More importantly we believe James has much better record of downside protection with superior downside risk stats than STS, as we discuss in our Performance section.

The dividend of STS has been reset to an expected divided of 5.5p per share, a level that James is confident can be grown progressively through the portfolio’s underlying revenue alone. Since the announcement of a new investment manager, the discount for STS has narrowed and is currently trading on a 0.7% discount.

Analyst's View

We think James and the Troy team are a strong management team and a good replacement for Mark. James, in his open-ended strategy Trojan Global Income Fund, has demonstrated an investment process which biases towards quality and value factors. We view these as being potentially more conducive of sustainable dividend growth than STS’s comparative growth basis under Mark Whitehead.

It is our belief that the downside protection that the Troy’s Trojan Global Income Fund has been able to achieve over the last three years is welcome and will allow STS to have a more stable dividend yield than previously. What view as more impressive is that this has been achieved with performance that was competitive with that of STS over the same period, even though James’ more valuation-sensitive and defensive approach has been out of favour, and without the benefit of gearing. Given that the risk profile of income investors is typically tilted towards capital protection rather than return seeking, we believe that this will be an attractive characteristic of STS going forward.

The discount has already narrowed significantly with the announcement of the change in manager. Another potential catalyst for further narrowing of the discount, or even a move to a premium, could be a near-term market downturn, where the defensive characteristics of STS will be sought after.

bull bear
Strategy has a proven record of downside protection Dividend rebasing will cause income fall in year one
Balanced approach to factors should create more of an 'all-weather' strategy Use of gearing can exacerbate losses on the downside, and jeopardise capital protection advantages
Focus on income growth could appeal to long-term investors Could underperform global equities during a growth stock driven market
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, which has achieved 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 a selection of 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...
12 Oct 2017 Roaring back…
We analyse the drivers behind the significant outperformance of global active managers in 2017, following what was a very poor year for them in 2016...
03 May 2017 I'm not interested in 'me-too' portfolios...
We meet Securities Trust of Scotland manager Mark Whitehead and ask how he is helping to shape Martin Currie's equity income strategy...
16 Mar 2017 Having your cake and eating it too?
We look into the new fad of trusts paying their dividends out of capital and analyse whether or not it really is a sustainable strategy...
22 Feb 2017 Into the wilderness...
In this detailed study of the global equity sectors, we analyse how managers are positioned in a world of high valuations and seismic political changes...
21 Feb 2017 Fund Analysis
A global equity income fund with an experienced management team and a focus on dividend growth...
11 Nov 2016 Analysis: The mounting threat to equity income trusts' dividends...
With fears over potential dividend cuts across the UK mounting, we analyse how safe UK equity income's dividends really are...
View all

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