SPRING 2019 Backing a winner? MARKERS AND MEASURES OF SUCCESS alliancetrustsavings.co.uk Welcome to the latest edition of Taking Stock. Backing a winner? We invest to make the most of our money. Aiming to grow our capital, to generate an income or a combination of both. But how can we know if we’re backing a winner that’s likely to deliver what we need over the longer term? Is choosing where to invest an art or a science? These are challenging questions at any time, and the choppy market conditions we experienced at the end of 2018 may also mean they are more at the forefront of many investor minds than in recent years. Markers for success That’s why, in this edition of Taking Stock, we asked our expert contributors to explore some of the markers and measures for investing success. From the length of service of an investment manager, through whether they invest in their own fund to teamwork and process. What exactly is it that can give managers the edge? How do they go about benchmarking their own success? And how can you use that information to help decide if you’re on the right track? I hope, as ever, that you will find Taking Stock 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 18 20 Contents 04 An investor’s guide to data sources 12 Extreme returns When researching investments and assessing their performance James Budden of Baillie Gifford shares the challenging findings there’s a vast amount of data available to investors these days. of Professor Hendrik Bessembinder’s academic research into Alliance Trust Savings’ James McCafferty highlights some of the investment returns, including his conclusion that compounding, main sources in this brief guide. not profit taking, is key to achieving long-term investment success. 06 We’re talking success 14 Celebrating 130 years – and looking to the future After many years when markets have seen near-uninterrupted The Merchants Trust was established in the same year the Eiffel growth, it seems the investment environment may be changing. Tower was opened. It’s survived two world wars, the great Tony Foster and Bruce Stout of Aberdeen Standard Investments depression, the 1970s inflationary shock and the global financial discuss how investors’ measures of success may need to adapt. crisis. Manager Simon Gergel explores the reasons why. 08 How to pick an investment company 16 Straightforward investing Nick Britton of the Association of Investment Companies shares Nitin Bajaj of Fidelity has a very simple investment philosophy: his views on how to go about narrowing down the investment buy good businesses, run by competent and honest people, and field, explaining why he sees successful investing as a learning at a price that leaves enough margin of safety for mistakes and process in which skill, patience and luck are all involved. bad luck. He explains how this plays out in the stocks he picks. 10 A contrarian approach can pay dividends 18 Facts, figures and humans Alasdair McKinnon of The Scottish Investment Trust explores why Facts and figures like charges, performance, risk ratings and his team prefers to plot its own course rather than following the investment objectives may not be all you want to consider when herd. They see value in ugly duckling stocks shunned by others deciding where to put your money. Alliance Trust Savings’ Sara but with potential to improve. From wine to retail. Wilson explores some of the more human clues you might also pick up on. 11 Ediston: Epic for income The Ediston Property Investment Company aims to pay a highly 20 Optimistic investing in a challenging market competitive dividend in monthly instalments. Manager Calum Mark Barnett of Invesco explains why, despite a challenging Bryce explains how they go about achieving this, from a focus global economic backdrop and ongoing uncertainty around on cash-flow to looking beyond the physical buildings themselves the nature of our future relationship with Europe, he remains to how they ‘live and breathe’. optimistic about the UK’s future prospects for investors. Taking Stock alliancetrustsavings.co.uk | 3 When researching investments and assessing their performance there’s a vast amount of data available to investors these days. James McCafferty highlights some of the main sources in this brief guide. nyone with money in an investment fund of any If that feels a little confusing, the main thing to kind – from investment trusts to unit trusts and understand is that KIDs and KIIDs are broadly similar A OEICs – would expect the manager to do their in terms of their content and purpose. research when assessing and selecting investments. There are some differences in presentation and No manager should be investing in something they methodology (for instance, the KID includes forward- don’t understand. looking performance projections, whereas the KIID gives The same could be said for investors and the funds past performance details) but both provide standardised they choose. What a fund costs, its objectives, and information, including the objectives, risk level and charges. what it invests in are all factors that might influence And the fact each is standardised makes it easier to its performance and your decisions. But where do compare different options on a like-for-like basis. you find this information? Here are some of the You should be able to get whichever type is relevant sources you can use. from a fund’s provider or anyone else who gives you access to buy a fund. The KID or KIID Prospectus A Key Information Document (KID) must be offered for any type of investment fund that is a Packaged Retail When a fund is launched, this is often the first official and Insurance-based Investment Products (PRIIPs). That information that investors will see. The prospectus is typically includes investment trusts. A Key Investor Information a fairly lengthy and technical document, offering much Document (KIID) is the equivalent for funds that are more detail than the KID or KIID, particularly on the fund’s Undertakings for the Collective Investment in Transferable investment process and philosophy. It may also point you Securities (UCITS). That includes unit trusts and OEICs. in the direction of even more detailed information. Again, Many UCITS also count as PRIIPs and eventually if things you should be able to get the prospectus from a provider go according to current regulatory plans, their KIIDs or anyone else who gives you access to buy a fund. will be replaced by KIDs over the coming years. An investor’s guide to DATA SOURCES 4 | Taking Stock alliancetrustsavings.co.uk Factsheets, commentaries Charges statements and reports Changes implemented in January 2018 with Factsheets are at-a-glance documents with the second Markets in Financial Instruments up-to-date details of the fund’s performance Directive (MiFID II) included requirements and what it invests in, usually including the to disclose expected costs and charges for top holdings, benchmark comparisons and investing before you do so, and then details breakdowns of its exposure to different sectors of the actual costs and charges incurred each and/or regions. year after you have. Most providers also offer regular manager These show the costs and charges – commentaries and interim and annual reports including one-off, ongoing and transaction on how their funds are performing, as well as costs – on an aggregated basis and as a cash less formal information such as interviews and amount and a percentage figure, along with an presentations. The provider’s website is often illustration of their impact on your investment the best place to go for these although you returns. This type of information can help you can usually access fund factsheets through review on an ongoing basis whether you are any investment platform (like Alliance Trust happy with the value you are getting from a James McCafferty Savings) that you use to hold and trade in fund given the charges you are paying. Platform Proposition Manager fund investments. Alliance Trust Savings Limited A final word Fund performance comparisons James is Platform Proposition Manager at Alliance Trust Savings Thorough research on any investment is a There are numerous places online where you and has responsibility for the must. It’s unlikely to be a good idea to invest can compare how different funds and sectors ongoing development of the are performing over different time periods. Most in something you don’t understand. All the platform and products. He has platforms, including Alliance Trust Savings, have above sources can help you to make informed over 15 years industry experience gained in the Intermediary research sections on their websites that include decisions when it comes to investing in funds of different types. Business at Cornelian Asset historical fund performance, as do data providers Managers and in previous roles Some of the information will overlap, but it’s such as Morningstar and trade bodies including with F&C and Standard Life. the Investment Association and the Association of all easily accessible and increasingly provided Investment Companies (which covers investment in a way that many investors will find fairly clear trusts). Keep in mind, of course, that historical fund and straightforward, whether new to investing performance is not a guide to future performance.