Ch-ch-ch-changes

Change is an ambiguous concept for most people.

While a change may be as good as a rest, some people might argue – and indeed this was a foundational theme of the Conservative party’s recent election campaign – that it’s better to stick with the devil you know than the devil you don’t.

In the UK the electorate, or at least the part of it that could be bothered to vote, has thrown caution to the wind and opted to ignore that maxim.

As a consequence we see the end of an almost two decades old dominance by an incumbent party which, in its twilight years, has seemed increasingly senile.

After a wildly erratic series of prime ministers including the robot, the scruffy one who couldn’t work a zipwire (or keep his trousers zipped) the one who was outlasted in her premiership by an unrefrigerated lettuce, and the one who thought making young people do community service was a vote-winner, the long-suffering British public have voted conclusively for change.

Or perhaps more realistically those who made it to the polling booth have voted for stability, which is what Sir Keir Starmer appears to represent.

But change at the top has an unsettling effect. Labour’s proposed policy on the charitable status of private schools is unpopular among those who will no longer benefit from the tax break it currently provides, and even The Guardian says it may – despite its instinctive appeal to working class voters – not actually make much sense.

The newspapers are, as usual, determined to maximise public anxiety about what comes next and this policy is an easy win for those seeking to generate unease about what the new leadership means for Britain, for its place in the world, and at a basic level – to paraphrase – for the place of the middle class in the UK’s pecking order if the Labour Party turns out to be full of communists after all.

As for countries, so for companies, and the effect of a change in management on a company can be extremely unsettling for shareholders but in the case of the Witan (WTAN)/Alliance Trust (ATST) merger which was announced last week our analysts are sanguine on the consequences.

Kepler founding partner William Heathcoat Amory said: “The merger with Alliance Trust is very much the “continuity vote”. Switching to a single manager strategy would have represented quite a big change to what Witan has been offering for 20 years, which is an open architecture multi-manager offering.

“In our view, a “one stop shop” approach to global equities as espoused by Alliance Trust very much does have relevance in today’s market. As such, for Witan to adopt the Alliance Trust strategy makes a lot of sense, and ticks all of the boxes; better liquidity, lower charges, a move up in the index rankings into the FTSE 100.”

Witan and Alliance Trust aren’t the only investment trusts to see change at the top in recent months, and boards across the sector are taking a more active approach to employing the powers they have to govern on behalf of the shareholders they represent against what has been a difficult backdrop for investment trusts generally.

One success story is Rockwood Strategic (RKW), which we looked at last in June. Originally launched in 1999, it began a wind-down procedure in December 2021 when Gresham House used its position as its largest shareholder to implement the closure. The shares were bought by Harwood Capital in April 2022 and the trust’s former manager – Richard Staveley – took the reins and implemented the current strategy. Since then performance has been exceptional. At our last update the trust had returned 77.2% in NAV terms, versus a sector average of 18.2% and a return from the benchmark FTSE Small Cap ex Investment Trust index of 29.8%.

Kepler’s Ryan Lightfoot-Aminoff said: “This performance hasn’t just been driven by a buy-and-hold approach seen elsewhere, but through constructive engagement by Richard and the experienced team at Rockwood. There have been higher cash levels though that will have contributed to relative performance in falling markets, but on the whole, we believe the trust is less reliant on market forces to drive returns as the manager can help instigate a performance turnaround, including through M&A activity which can be supported by the flexibility of the wider Harwood group.”

International Biotechnology Trust (IBT) is another example of a trust which has seen major change at the top; first with the departure of longtime manager Carl Harald Janson who announced he would be stepping down as lead manager after seven years at the helm, and latterly when the trust moved to Schroders from its previous home at SV Health Investors.

Co-lead managers Ailsa Craig and Marek Poszepczynski – who had worked with Carl Harald during his tenure – moved with the trust to new desks at Schroders, and celebrated their third anniversary as masters of the ship in March this year.

Much of this period has been a difficult one for biotech investors, but the risk management of the experienced pair has contributed to strong relative performance, and to the strong returns that the trust recorded in the market rally for the sector late last year.

JPMorgan UK Small Cap Growth & Income (JUGI), the product of a merger between JPMorgan UK Small Cap and JPMorgan UK Mid Cap earlier this year, is another example – the result of the merger being a larger, cheaper, more liquid trust with an enhanced dividend policy. In performance terms the early signs are strong, which is not a surprise given the strength of the performance that managers Georgina Brittain and Katen Patel have delivered on the small cap predecessor, and this could be one to watch.

More recently European Assets (EAT), part of the Columbia Threadneedle stable, replaced incumbent lead manager Sam Cosh with Columbia’s head of European small cap equites Mine Tezgul, after a performance review and a change to the trust’s investment approach instigated by the board. At the same time, the board announced a revised fee structure, with a smaller fee for the manager on assets over £300m – making the £440m trust cheaper for shareholders.

Change, then, can be a good thing – and these examples demonstrate how it can be done well - but for those who are inconsolable about the election result, spare a thought for France. The results of the election there have put the political equivalent of a push-me-pull-you in charge of a country already famous for its fractious politics, recalling the 1980s skip-fire of (socialist) Mitterand and (centre-right) Chirac’s ‘cohabitation’ at the heart of French power. Le plus ca change and all that!

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