Tellworth British Recovery & Growth 24 September 2020

Tellworth British Recovery & Growth Trust plc (BRIT) is a new investment trust which will sit in the AIC UK All Companies sector. It aims to benefit from the investment manager’s view that UK equities are out of favour on an international basis, offering an opportunity to stock picking investors who are willing to take a long-term view.

Tellworth is a relatively new fund management company set up by Paul Marriage and John Warren in 2017 following successful careers first at Cazenove and then Schroders where they ran popular open-ended funds. This new trust will seek to use the advantages of the closed-ended structure to invest in a portfolio designed for the market conditions of today.

This portfolio will be relatively concentrated with 35-45 stocks. The managers will have a flexible mandate to invest in companies large and small, and not follow any particular benchmark. That said, they are restricting themselves to companies which have a significant presence in the UK, and will not be investing in mining, energy and gas or biotechnology companies.

The illustrative portfolio will be made up of three different buckets identified by the manager – with c. 40% in British Global Leaders, 40% in British Recovery and 20% in British Technology (for more information please see Portfolio). The team will be investing in what they think offers the best long-term returns, and the trust structure will allow them to run winners for longer, but also invest in less liquid opportunities. The manager has permission to invest up to 10% of the trust’s portfolio in unlisted companies which clearly adds to the potential opportunity set, but might also add to risks.

Given the target makeup of the portfolio, BRIT will be relatively balanced between ‘growth’ and ‘value’ stocks. As such, the managers believe BRIT represents a good “all-weather” option. The shares are expected to start trading on 13 October.

In our view, Paul Marriage and the team at Tellworth are one of the key selling points of BRIT. As we discuss in the Performance section, the team have a long-term track record of successfully generating alpha and adding value for their investors through their stock picking approach to UK equities. The trust structure should aid them in continuing this track record, allowing the managers to run winners longer and access less liquid opportunities.

At the same time, there are risks. The trust has the potential to be geared up to 25% of NAV, and the portfolio will also be more concentrated than would be the case for an open-ended fund. With these factors taken into account, we believe it is fair to assume that the portfolio volatility will be higher than the historic track record suggests (see Performance).

Investors who participate in the IPO of BRIT will be purchasing shares on a premium of c. 1.75%. Compared to the UK All Companies sector which has an average discount of 12% currently, at launch BRIT will be at a significant premium to peers. There are a number of discount control features built into the structure, but it remains to be seen how the board and manager would deal with the discount widening out. However, in our view, there are enough precedents of trusts maintaining a significant premium to their AIC peer group if they offer a differentiated proposition and good relative performance.