William Sobczak
View profile
Updated 12 Feb 2021
Save Article Download

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.

In January Kepler Trust Intelligence released the Kepler's top-rated investment trusts for 2021 article, in which senior analyst Thomas McMahon applied historical quantitative analysis to identify the top-performing closed-ended funds in the Growth, Income & Growth and Alternative Income categories. The ratings were designed to highlight those managers which have achieved consistent outperformance, with attractive risk characteristics. As the selection system is entirely quantitative, it allows trusts to be compared without any personal biases and views – and without regard to commercial relationships – and for us to look at the universe in a purely objective way.

In this blog, which will be distributed monthly, we will aim highlight things which we think stand out among the top rated trusts, whether it an attractive entry point, a significant change,  or a piece of significant news affecting the strategy. 

Misplaced negativity?

The first trust under our microscope in 2021 is Schroder UK Mid Cap (SCP). SCP aims to provide a total return in excess of the FTSE 250 ex Investment Trusts Index and an attractive level of yield, which can contribute a degree of stability to the fund’s total return. 

It was announced in late December 2020 that the veteran UK stock picker Andy Brough is passing lead responsibility for the investment trust to Jean Roche, his co-manager. After this announcement the trust’s discount widened significantly. Before the news, the trust was trading at a discount of c. 2% but has since widened to the current level of c. 12% (as at 01/02/2021). This compares to a sector weighted average of c. 4%.

Despite this apparently poor sentiment toward the change in management, we are not convinced it will have a huge impact on the trust. Although Andy was is an old hand in the investment trust space, Jean has worked with him on SCP for more than four years now. Alongside this, very little about the process has changed and the trust’s high-conviction investment approach will continue to focus on resilient companies that are capable of delivering high-risk adjusted returns with rising cash flows and earnings.

Since the hierarchical shift, the trust has continued to perform strongly, and over the past month, ending 01 February 2021, delivered NAV total returns of 0.7%. This compares to a sector average of -1.3% and -0.2% from the benchmark. In fact, over the past six months the trust has now delivered some of the strongest returns of the AIC All Companies sector, returning 29.2% on a NAV total return basis. Relative to the FTSE 250, ex ITs, this represents a 5.9% outperformance according to Morningstar.

Over 2020, the trust did see some significant hits to the underlying dividends, with a reduction of more than 55% in investment income during the pandemic. After dipping into reserves, this caused the board to cut the final dividend in half to 9.5p and leave total dividends for FY20 at 13.3p, down 28.1% on the previous financial year. As a result, SCP just yields 2.3%. Despite this, we believe the trust stands in decent stead for 2021. The outlook for dividend income from UK companies next year is expected to improve from last year's depressed levels according to the board of SCP. Consequently, the current discount of c. 12% could be an interesting entry point into a trust which has seen a possibly misplaced shift in sentiment in spite of strong momentum in NAV growth terms. Meanwhile the UK looks likely to exit its vaccination programme earlier than many peers, which could give the local economy and stock market a boost.

Login to read the full article...

Kepler Trust Intelligence provides research and information for professional and private investors. In order to ensure that we provide you with the right kind of content, and to ensure that the content we provide is compliant, you need to tell us what type of investor you are.

Continue

Welcome to Kepler Trust Intelligence

Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority.
Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority. To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.