ON the SHOULDERS of GIANTS Building on Lessons Learned
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SUMMER 2019 ON THE SHOULDERS OF GIANTS Building on lessons learned alliancetrustsavings.co.uk Welcome to the latest edition of Taking Stock. Drawing inspiration It’s natural to be inspired by others who’ve been successful in our eyes. From exceptional bosses and enviable friends to those who seem able to turn everything they touch into gold. Inspiration doesn’t just come from individuals though. Whilst we all understand that past performance is not necessarily a guide to future performance, inspiration can also come from the established track record of a successful team or investing approach. Applying lessons learned In this edition of Taking Stock our expert contributors outline their approach to portfolio management, highlighting lessons learned from those who have come before them. How do they apply those lessons in the interests of investors today? Are there specific formulas for success? Or is it more about sticking to the basics and working hard to get those right? I hope, as ever, that you will find this an informative and interesting read. But please do get in touch if you have any feedback or suggestions for future editions. Sara Wilson Head of Platform Proposition Alliance Trust Savings This general information is provided to support you in making your own investment decisions. It is not a recommendation to buy or sell. Please be aware that the value of investments can fall as well as rise so you could get back less than you invest. Past performance is not a guide to future performance. 8 6 14 16 20 Contents 04 Rise of the activists 14 Inspired to deliver the best of most worlds Whether you see shareholder activists as heroes or villains, For Lucy Macdonald, Portfolio Manager for The Brunner their profile is undoubtedly on the rise. Alliance Trust Investment Trust, successful portfolio composition is all about Savings’ James McCafferty looks at some of the ways that detailed analysis to ensure that every investment held is there investors are being inspired to use their rights to influence for a good reason. And in that, she has taken inspiration the corporate agenda. from at least one investing great. 06 It’s too early to tell 16 A dedicated follower of unfashion The Scottish Investment Trusts’ Alistair McKinnon looks back Alex Wright of Fidelity nails his colours to the mast as a at the 2008/9 financial crisis, considering how major events contrarian investor. He’s inspired by 25 years’ heritage and in human history can cause reverberations for surprisingly history of contrarian investing at Fidelity Special Values PLC, long periods of time and how reality can also be distorted believing it’s a field in which it takes a particular mind-set to suit the interests of those involved. and a highly disciplined approach to succeed. 08 The resilient ones 18 Taking income higher with real estate For the Scottish American Investment Trust, the shoulders on The ability of real estate to generate a high and dependable which it stands are resilient companies that provide investors income and withstand economic volatility continues to make with a dependable dividend income regardless of market it an important element of many investors’ portfolios, says adversity, while also promising future growth. Toby Ross Andrew Allen of Aberdeen Standard Investments – provided explains its approach. you choose assets carefully. 12 Trusting in income 20 Inspiring dividend heroes A focus on paying a consistent level of income can make a For investors in search of income, heroes don’t necessarily trust attractive in its investors’ eyes. Rhys David of Invesco wear capes. Alliance Trust Savings’ Sara Wilson reviews the outlines the approach taken by each of City Merchants High dividend paying track record of investment trusts and Yield Trust Limited and Invesco Enhanced Income Limited to outlines some of the reasons for their potential to pay out go about achieving this. consistently and reliably over the years. Taking Stock alliancetrustsavings.co.uk | 3 Rise of the ACTIVISTS hether you see shareholder activists as heroes or villains, their profile W is undoubtedly on the rise. James McCafferty takes a look at some of the ways that investors are using their rights to influence the corporate agenda. When the boss of the world’s biggest asset manager says firms need to do more on everything from “protecting the environment to retirement to gender and racial inequality”, the sense of a shifting mood is difficult to escape. BlackRock Chief Executive Larry Fink made the point in January this year, in his annual public letter to chief executives, alongside his more traditional comments on financial and geopolitical uncertainty 1. It was just the latest indication that major investors are taking their stewardship role increasingly seriously. Promoting gender diversity Legal & General (L&G) recently revealed that it voted against more than 100 chairmen in 2008 for their failure to increase the presence of women in the boardroom. Its action on diversity represented a marked increase on the 13 chairmen voted against in 2016 for failing to reach gender diversity targets. It also divested from a number of companies that had previously been held in its Future Worlds Funds, which aims to address long-term financial risks related to climate change. Companies were excluded from the fund on the basis of issues such as poor governance and lobbying for policies that contribute to climate change 2. Sacha Sadan, L&G’s director of corporate governance, said it would continue to vote against boards where concerns remain around environmental-based issues, adding that “the point here is that we are facing a climate catastrophe” 3. Tackling corporate pay and climate change Others have taken similar action on a range of issues, with several prominent recent examples: • In November 2018 the chief executive of housebuilder Persimmon, Jeff Fairburn, stepped down following a shareholder revolt against a proposed pay package. Firms including Royal London Asset Management and Aberdeen Standard Investments were among those voting against the proposal 4/5. 4 | Taking Stock alliancetrustsavings.co.uk Rise of the • RBS is under renewed pressure from Promoting sustainable investment James McCafferty shareholder rights group ShareSoc to Activists, and those seeking to apply ESG factors Platform Proposition Manager give investors a bigger say on corporate in other ways, can also refer to a widening range Alliance Trust Savings Limited governance. ShareSoc, along with the of policies and guidelines aimed at promoting Investment Association, also wants the bank sustainable investment. James is Platform Proposition to reduce the gap between the pensions of New ESG-related requirements introduced Manager at Alliance Trust Savings top executives and staff 6. by the UK government in 2018, for instance, and has responsibility for the • Investors including Schroders and Hermes require pension fund trustees to take account of ongoing development of the platform and products. He has backed responsible investment charity ‘financially material’ considerations, including over 15 years industry experience Share Action’s call for HSBC to cut back 11 ESG factors, such as climate change . gained in the Intermediary on investments in coal projects and coal- Many fund firms also use the UN’s Principles 7 Business at Cornelian Asset reliant companies . for Responsible Investment as a basis on which to Managers and in previous roles 12 • In October 2018 some 40% of investors incorporate ESG issues into investment practice . with F&C and Standard Life. in Whitehaven Coal, Australia’s biggest The guidelines, which ask firms to commit to independent coal miner, voted in favour of six ESG objectives, are followed by more than a resolution demanding the company reveal 2,200 signatories accounting for over $82 trillion 13 the financial risks it faces as a result of (£61.8trn) in assets under management . climate change, forcing the company to With this spring’s Extinction Rebellion protests review its disclosures policy 8. drawing more attention to climate change issues, it seems likely we can only expect to see These are just some of the recent instances of increased focus on the ability – and willingness major investors seeking to use their shareholdings – of private and professional investors to drive as a force for positive change. The growing positive change. prominence of such activism reflects the rise of broader environment and social governance 1. Blackrock – Larry Fink CEO letter – 01/19. (ESG) issues up the investment agenda, apparently 2. Guardian – L&G steps up action against firms with few Important information: This shifting from a niche concern into mainstream one. female board members – 16/04/19. general information is provided 3. Pensions Age – LGIM warns of ‘climate catastrophe’ as it takes action against corporate boards – 16/04/19. to support you in making your Entering a new phase for activism 4. FT – Persimmon boss at centre of pay storm to leave own investment decisions. It is company 07/11/18. not a recommendation to buy The MSCI defines ESG as “the consideration of 5. FT – Persimmon hit by pay revolt at AGM 25/4/18. or sell. Please be aware that environmental, social and governance factors 6. Yorkshire Post – Showdown for RBS executives over pay the value of investments can fall packets – 22/04/19. alongside financial factors in the investment as well as rise so you could get 7. Share Action – Investors hold HSBC’s feet to the fire on 9 back less than you invest. Past decision-making process” . Jane Sydenham, coal – 06/03/19. performance is not a guide to investment director at Rathbone Investment 8. Market Forces – Investors want Whitehaven Coal to future performance. Management, said recently that the sector was disclose climate risk – but not avoid it – 25/10/18. 9. MSCI – What is ESG? entering a new phase in shareholder activism.