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 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

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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. or giving existing portfolios a review.

SUPPORT FROM ALLIANCE TRUST SAVINGS You’ll find KIDs, KIIDs, prospectuses, fund factsheets and other useful tools and information in the Research section of your secure account online. Or visit our Investment Hub at alliancetrustsavings.co.uk.

Important information: 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 An investor’s guide to future performance. This article is issued and approved by Alliance Trust Savings Limited. Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767; registered office, PO Box 164, 8 West Marketgait, DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. This is a financial promotion from Alliance Trust Savings Limited.

Taking Stock | 5 We’re talking SUCCESS After many years when What are your overall measures at high valuations. Is using cheap financing to of success on your funds? buy expensive stock really a good option? It may financial markets have be in the interest of senior management, but it seen near-uninterrupted TF: Our approach is to find a wide range of asset is not in the interests of us as shareholders. growth, Tony Foster, classes that can offer or have the potential to offer In contrast, since the early 2000s, the payout an attractive return, building on a portfolio with ratios from Asian stocks have shifted as they Senior Investment a range of different risk characteristics and return increased their dividends. Taiwan Semiconductor, Manager of the Aberdeen drivers. It is the power of diversification taken on for example, has seen phenomenal growth and the widest possible scale. Alongside equities and has grown its payouts. This is the type of business Diversified Income and bonds, our portfolio will include infrastructure, we want. In emerging markets more generally Growth Trust plc and property, private equity and other ‘real’ assets. debt to GDP is low, free cash flow is very strong, the payout ratios are rising every year. The capital BS: Ours is a large liquid investment trust, Bruce Stout, Manager base of banks in emerging markets is really strong. managed with a long-term, bottom-up focus. We I don’t see the same in Italian, German or British of Murray International want to find high quality growth businesses that banks where lending practices are problematic and Trust PLC, discuss how throw off cash and increase their dividends. Our consumer debt is high. Companies in Indonesia active share is around 0.9%, so the trust won’t investors may need to and Mexico have learned over decades that it behave anything like the benchmark. Success to is dangerous to run a leveraged balance sheet, change their measures us is growing and protecting capital over time. particularly if it is in dollars. of success to adapt to How do you go about picking TF: I agree investors need to re-think. A balanced the current environment. portfolio of bonds and equities won’t give you winners today? the returns they’ve given you over the past BS: We believe investors need to get away 30 years. We are not investing in developed from conventional thinking about, for example, market government bonds and investment grade emerging versus developed markets or certain corporate credit, for example. The interest rates sectors. We are flexible and we go where there on offer are too low. They assume a very gloomy is good growth. In the US, for example, debt to outlook for growth and inflation; and this is not GDP is high, companies are buying back stocks our central view.

6 | Taking Stock alliancetrustsavings.co.uk Has greater value emerged in equities Important information: over the last few months? • The value of investments and the income from them can fall and investors may get back less TF: We believe value is still difficult to come by in than the amount invested. equities. Our exposure is currently around 20% We’re talking • Past performance is not a guide to future results. of the portfolio – this is at the low end of our range of 20-35%. Valuations are still expensive and • Investment in the Company may not be earnings expectations are falling. We are finding appropriate for investors who plan to better value in areas such as infrastructure. withdraw their money within 5 years. That said, our target return is LIBOR + 5.5% net • The Company may borrow to finance further of fees*. That cannot be achieved without holding investment (gearing). The use of gearing is some growth assets. Where we are invested we likely to lead to volatility in the Net Asset are focused on fundamentals-based global equity. Value (NAV) meaning that any movement in the value of the company’s assets will result BS: In many cases, we agree. Market in a magnified movement in the NAV. complacency was shattered when the Nasdaq • The Company may accumulate investment dived 25% last year. This should always provide positions which represent more than normal pricing opportunities and we are vigilant to that. trading volumes which may make it difficult to Bruce Stout However, we still have relatively low exposure realise investments and may lead to volatility Senior Investment Director to the UK and Europe. There is simply better in the market price of the Company’s shares. growth elsewhere. Today, we hold 30% in Asia • The Company may charge expenses to Bruce Stout is a Senior Investment and 18% in Latin America. Manager on the Global Equity Team capital which may erode the capital value at Aberdeen Standard Investments. of the investment. Success goes beyond good returns, but Bruce joined Aberdeen in 2001, via • Movements in exchange rates will impact on the acquisition of Murray Johnstone. also ensuring effective diversification. both the level of income received and the He has held a number of roles How are you managing that today? capital value of your investment. including Investment Manager on the Emerging Markets Team. TF: We look broadly for diversification. We have • There is no guarantee that the market price a holding in litigation finance, for example, which of the Company’s shares will fully reflect provides funding for commercial litigation. The their underlying Net Asset Value. group provides the funding to pursue the case, • As with all stock exchange investments the and if the litigant wins, Burford takes a share value of the Company’s shares purchased will of the proceeds. The returns are attractive, but immediately fall by the difference between the most importantly, they are not linked to rising buying and selling prices, the bid-offer spread. rates or falling stock market, just to which case If trading volumes fall, the bid-offer spread progresses in court. They are looking for cases can widen. with individual drivers. • Yields are estimated figures and may fluctuate, The fund also holds a number of niche there are no guarantees that future dividends opportunities. It includes a Latin American will match or exceed historic dividends and infrastructure fund, for example. These are the certain investors may be subject to further types of asset people can’t invest in directly, but tax on dividends. they can have exposure through this fund. We • The Company invests in emerging markets look as widely as possible to find opportunities which tend to be more volatile than mature that give shareholders attractive returns over time. markets and the value of your investment BS: For us, diversification means trying to find could move sharply up or down. something completely different to what we already • Aberdeen Standard Investments is a brand of own. Auckland airport, for example, has exposure the investment businesses of Aberdeen Asset Tony Foster to Chinese overseas tourism, where traffic Management and Standard Life Investments. Senior Investment Manager volumes are increasing. This is very different • Tax treatment depends on the individual to other areas we own in the portfolio, such as circumstances of each investor and may be Tony Foster is a senior investment Unilever Indonesia or Brazil’s Banco Bradesco. subject to change in the future. You should manager in the Diversified Multi- We want 50 different businesses doing different obtain specific professional advice before Asset team. Tony joined Aberdeen things that are not correlated. making any investment decision. following the SWIP acquisition in April 2014. At SWIP, he managed a number of UK equity portfolios. * This is an internal performance target which the Investment Manager aims to achieve as at the date of this document. Prior to joining SWIP in 2000, Tony This target is not based on past performance, may be subject to change and cannot be guaranteed. Investors should spent nearly 12 years with Baillie always refer to the investment objective and restrictions as stated in the latest prospectus. Gifford working in the UK and Asia Pacific equity teams.

Aberdeen Diversified Income and Growth plc discrete performance (%) Year ending 31/12/18 31/12/17 31/12/16 31/12/15 31/12/15 This article is issued by Share Price (4.2) 21.2 (16.0) 8.0 (1.7) Aberdeen Asset Managers NAV (4.7) 9.1 (4.9) 2.3 (2.8) Limited which is authorised LIBOR +5.5% 6.3 and regulated by the Financial Conduct Authority in the Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend United Kingdom. calculations are to reinvest as at the ex-dividend date. Nav returns based on NAVs with debt valued at fair value. Source: Morningstar. For information only. Performance prior to 11 February does not relate to management by This is a financial promotion Aberdeen Standard Investments. Past performance is not a guide to future results. from Aberdeen Asset Managers Limited. Find out more at murray-intl.co.uk and aberdeendiversified.co.uk

Taking Stock alliancetrustsavings.co.uk | 7 How to pick an INVESTMENT COMPANY irst of all, here’s how not to do it. Picking So is success in picking an investment company There are only 300- an investment company (also known as down to blind luck? Well, that really depends on how you define success. If your goal is to pick the odd investment F an investment trust or closed-ended fund) just because it has performed the best over the top performer in the global sector over the next five companies, compared past one, three, five or ten years is a tactic that’s years, then perhaps you should forget investing likely to end in disappointment. and try horse-racing instead – the odds would be to something like Take the AIC Global sector, which has 20 similar and it might be more fun. On the other 3,000 open-ended investment companies in it. The very best- hand, if you’re aiming for a return of inflation plus 2% over the next decade, you won’t need Lady Luck funds. But choosing performing of these companies in 2017, delivering a whopping 71% return, turned into on your side to feel happy with the outcome. First, you need to make some basic choices. Are between them can the very worst-performing of 2018, losing 24%. you looking for income, growth, or a combination Meanwhile 2017’s biggest loser, which was still be daunting. of the two? Will you stick with mainstream equities down 6% in that year, topped the charts in (UK or global) or branch out into regions (Europe, 2018, returning 47%. Asia or emerging markets) or even other asset In fact, in the world of investment companies, classes (property, infrastructure, private equity)? there’s a tendency for big winners one year to Your choices here will depend partly on your become big losers the next, and vice versa. That’s experience and confidence. because performance is driven partly by market These decisions will help you zone in on sentiment, which affects the discount or premium one or two AIC sectors. For example, let’s just to net asset value at which an investment imagine you want income, and you want to invest company trades. Sharp swings in sentiment, in UK equities. You’ll end up in the AIC’s UK positive or negative, are vulnerable to equally Equity Income sector, which has 24 investment sharp corrections. companies in it.

8 | Taking Stock alliancetrustsavings.co.uk How to pick an

“There is no magic statistic open to interpretation. There is no magic statistic Nick Britton that offers a surefire method of picking a winner. Head of Intermediary that offers a surefire method What’s important is to get a sense of how the Communications return was achieved. Compare it to the investment Association of Investment of picking a winner.” company’s benchmark: if it’s particularly good Companies (AIC) or bad, why? Read the chairman’s statement in the annual report, the past two or three annual Now it gets interesting. We’ve said that past Nick Britton ACSI is Head of reports if you can. Look at what’s been written Intermediary Communications at performance is no guide to the future but now I’m about the investment company online. You’ll start the Association of Investment going to row back on that a little. That’s because to build up a picture of the manager’s style and Companies. He works with financial you’re looking for income, and several investment be able to judge if it makes sense to you. advisers and wealth managers to companies have track records of raising dividends Many investment companies have been run by improve their understanding of going back 20 years or more (50 years, in a investment companies. Nick was the same manager for a long time. In these cases, few cases). These are not guarantees, but a fair previously a financial journalist indication of where the priorities of the board it’s easier to get a sense of how they perform and editor of What Investment and manager lie. Investment companies are in different market conditions. If the manager magazine. He graduated from able to achieve these long records because they is a more recent recruit, be aware that past Cambridge University and holds the Investment Management don’t need to pay out all their income, and can performance may be telling you little. Certificate. He is an associate reserve some for difficult times in future. If that is Finally, don’t forget to consider the discount or premium at which the investment company trades: of the Chartered Institute for important to you, it should be a selection criterion. Securities and Investment (CISI). The level of yield is also important, to give you high premiums mean you’re paying over the an idea of where you are starting from. How odds, but very wide discounts should ring alarm much income do you want? Be aware that as a bells too – why is the fund so unpopular? Gearing rule of thumb, the higher the starting yield, the (or borrowing to invest) could be appealing if slower the income stream is likely to grow. long-term growth is your aim, but it increases Now let’s look at total return (that’s capital losses when markets tumble. And an investment growth plus reinvested dividends). Yes, we know company’s fees and charges should also be it doesn’t tell you what you’ll get in future, but you carefully considered and compared to peers. wouldn’t be human if you didn’t want to look at it. Finally, don’t get obsessed with picking a Interpreting it, though, is tricky. Analysts will split winner. Investing is a learning process, and the total return into components: how much was there’s a lot of luck involved as well as some skill. due to the market, any particular style bias, asset Patience is important, too: once you’ve chosen an allocation or stock selection. They’ll use terms like investment company, be prepared to give it a fair ‘alpha’ and ‘beta’. But all these numbers are also run. The best returns come to those who wait.

Top 10 dividend heroes Company Consecutive years of dividend increased 1. City of London Investment Trust 52 2. 52 3. Alliance Trust 51 4. 51 5. BMO Global Smaller Companies 48 6. F&C Investment Trust 47 7. Brunner Investment Trust 46 8. JPMorgan Claverhouse Investment Trust 46 9. Murray Income 45 This article is issued and 10. 44 approved by the Association of Investment Companies (AIC), registered office 24 Chiswell Important information: This article can only cover some of the considerations necessary when choosing Street, London, EC1Y 4YY. an investment company. It does not constitute investment advice or a personal recommendation, and you should seek independent financial advice as to the suitability of any investment.

Taking Stock alliancetrustsavings.co.uk | 9 A CONTRARIAN APPROACH CAN PAY DIVIDENDS

s contrarian investors, we prefer to plot our own course rather than follow A the herd. Our quest is to find ‘ugly Alasdair McKinnon ducklings’ – companies that are shunned by others but offer a real prospect of improvement. Manager And while the obvious upside to this approach The Scottish Investment Trust is the potential for share price appreciation, it can also offer another valuable source of Alasdair joined the Company in 2003 and became Manager in 2015. returns as unfashionable companies often have higher than average dividend yields. He has 19 years of diverse global investment experience and a distinctly contrarian investment philosophy. Seeing the value in ugly ducklings He and his team take a highly active, It goes without saying that the ‘ugly ducklings’ differentiated approach to investment. we choose are unloved, but we believe that they Alasdair has an MA (Hons) in have the potential to improve their businesses. three times our original investment. While not all Economic & Social History from We look for companies that have the strength of our investments will prove fruitful, this example the University of Edinburgh and and flexibility to adapt and thrive over the demonstrates why patience can be such a virtue. an MSc in Investment Analysis (with longer term. A sustainable dividend from such distinction) from Stirling University. He is a CFA® charterholder and companies is attractive to us as it offers a return Enduring growth an Associate of the UK Society while we wait for our thesis to unfold. Paying dividends to our own shareholders has of Investment Professionals. Of course, not every investment in our portfolio been part of our heritage of 132 years. We’ve pays dividends and we wouldn’t necessarily recently increased the frequency of our dividend overlook a prospective investment for that reason. payment to quarterly. One of our aims is to grow A company navigating the low point in its cycle the dividend ahead of UK inflation and this is might opt to forgo a dividend to reinvigorate its supported by a record of raising our dividend in business. This prudent approach can hasten the each of the last 35 years. However, it should be company’s recovery and potentially allow more remembered that dividends are not guaranteed sustainable dividend payments to recommence. and can fall as well as rise. Indeed, a dividend reinstatement can be an important signal that the company’s rehabilitation Interested to learn more about the fund? is underway. Visit www.thescottish.co.uk or follow us on This scenario is currently playing out at Tesco, one of our biggest holdings. Tesco cut @ScotInvTrust its dividend after a difficult period, during which The Scottish Investment Trust PLC profits fell and discounting rivals gained market share. Since then, the company has regained its footing, allowing management to reintroduce the dividend. Important information: Please remember that As long-term investors, we have time on our past performance may not be repeated and is not For regular updates, a guide for future performance. The value of shares commentaries and contrarian side as we wait for a nascent recovery to become established. Patience is key to contrarian investing. and the income from them can go down as well as thoughts, visit us at up as a result of market and currency fluctuations. www.thescottish.co.uk A certain fortitude is also required to withstand the anxiety of the market, while holding steadfastly to You may not get back the amount you invest. our convictions. But the potential pay-off can be The Scottish Investment Trust PLC has a long-term more than worth the wait. policy of borrowing money to invest in equities in This article is issued and the expectation that this will improve returns for approved by SIT Savings Ltd, From sour grapes to an shareholders. However, should markets fall these registered in Scotland No: exceptional vintage borrowings would magnify any losses on these SC91859. Registered office: investments. Investment Trusts are listed companies 6 Albyn Place, One of the most notable successes of this patient and are not authorised or regulated by the Edinburgh EH2 4NL. approach is Treasury Wine Estates, formerly the Financial Conduct Authority. biggest holding in our portfolio. We invested T: Please note that SIT Savings Ltd is not authorised to 0131 225 7781 in this company in August 2015, when it was E: provide advice to individual investors and nothing in [email protected] very much out of favour. The catalyst for change W: www.thescottish.co.uk this article should be considered to be or relied upon was a new management team, whose strategy as constituting investment advice. If you are unsure This is a financial promotion transformed the business from an ‘ugly duckling’ about the suitability of an investment, you should from SIT Savings Ltd. to an elegant swan, before we decided to sell our contact your financial advisor. Issued and approved stake (or, to continue with the metaphor, it flew by SIT Savings Limited, authorised and regulated our nest) leaving a £39 million profit – almost by the Financial Conduct Authority.

10 | Taking Stock alliancetrustsavings.co.uk EDISTON: EPIC FOR INCOME

f you’re looking for monthly income, you market since 2004. On average, each member want it to be built on firm foundations. of our team has more than 20 years’ experience I At Ediston, we take that seriously – and in property investment and development. literally. All of our investments are in properties Calum Bruce we know inside out and from top to bottom. Beyond bricks and mortar BSC (HONS) MRICS This in-depth understanding of our investments When we consider any investment, our focus Manager assures us that the income we provide to our is always on cash flow. We want to be sure that our Ediston Property investors is as solid and secure as it can be. properties are not just paying for themselves but Investment Company That’s why we’re able to pay a highly competitive also paying out sustainable income for our investors. dividend in monthly instalments – allowing our To do this, we look well beyond the physical buildings themselves to understand how the Calum joined Ediston from Scottish investors to rely on a steady income stream to Widows Investment Partnership, properties ‘live and breathe’ – how they fit into cover everyday expenses. where he was involved with both their location and their economic environment. wholesale and institutional A growing dividend We go to great lengths to ensure that risks to mandates. He was Fund Manager the cash flow are minimised and that occupancy Ediston currently offers a 5.4%* annual yield. of the Halifax Managed Income rates and tenant satisfaction are maximised. Fund, and was Deputy Fund Our income payments stem from a diversified We have a profound understanding of all Manager of LTGP Limited portfolio of properties, helping the sustainability aspects of managing real estate for the benefit Partnership Incorporated. Prior of the overall dividend. We have maintained the of our tenants and investors. This spans the to this appointment he worked dividend since the inception of the fund, and range from change-of-use applications, through on the SWIP Property Trust. we expect it to grow in future. The dividend is to refurbishment and redevelopment, to tenant also well covered – meaning there’s something liaison, lease negotiations and rent reviews. Each in reserve if underlying earnings fluctuate. of these aspects offers opportunities for improving TIDM: EPIC the income stream available from property. Web: www.epic-reit.com A wealth of experience Intensive, entrepreneurial and The strongest support for our dividend comes Dividend as at 31/12/2018 from the expertise of our team. We live and unconstrained Yield: 5.40% breathe property. While the Ediston Property Our approach to property investment is intensive Investment Company listed on the London Stock and entrepreneurial. No holding in our portfolio Cover: 119% Exchange (LSE: EPIC) in 2014, the broader is left to look after itself. We sweat the small Paid: monthly Ediston business has been operating in the UK stuff, and we do it at every level of the process – from developing new properties to ensuring that existing tenants are satisfied and that no potential for improvement is missed. And with no benchmark, we’re free to focus on the areas where we see the greatest potential for sustainable income and steady capital growth. We’re confident that our record of steady income and sustainable capital growth is a compelling combination. So, if you need a regular income stream from actively managed investments, we’ve got you (and your dividend) covered.

* As at 31 December 2018

Important information: The contents of this article should not be construed as legal, tax, investment or other advice. Each prospective investor should make its own enquiries and consult its professional advisers as to the legal, tax, financial and other relevant matters and risks concerning any investment opportunity. Past performance is not a reliable indicator of future performance – the value of a stock market investment This article is issued and and any income from it can fall as well as rise and investors may not get back the amount invested. approved by Ediston Investment Whilst information contained in this article is believed to be accurate at the date of publication, it is subject to Services Limited which is change and does not purport to provide a complete description of Ediston Property Investment Company Plc authorised and regulated by (the “Company”) or its future prospects or performance. Any forecast, projection or target is indicative only the Financial Conduct Authority and not guaranteed. In particular, the payment of dividends and the repayment of capital are not guaranteed. (FRN:706655). The Company invests in property assets which can be highly illiquid, typically do not grow at an even rate This is a financial promotion of return and may decline in value, all of which may have a negative impact on the value of the Company. from the Ediston Investment To the fullest extent permitted by law, The Company, Ediston Investment Services Limited and their respective Services Limited. directors, advisers or representatives shall not have any responsibility or liability whatsoever for any loss (whether direct or indirect) arising from the use of this documents or its contents.

Taking Stock alliancetrustsavings.co.uk | 11 EXTREME RETURNS assumption of Modern Portfolio Theory that because equities are riskier they must have At Baillie Gifford we generally prefer our research higher rewards. But Bessembinder showed to appear irrelevant. The further it is from being that “slightly more than four out of every seven common stocks have lifetime buy-and-hold a direct debate about the merits of a company as returns, inclusive of reinvested dividends, of less than those on one-month treasuries. an investment the happier we tend to be. Much “When stated in terms of lifetime dollar wealth of the most valuable research is deeply indirect in creation, the entire gain in the US stock market since 1926 is attributable to the best-performing its investment implications and surprising in its 4 per cent of listed companies.” If this is right then our task is transformed. eventual impact. Our job is solely and simply to find and invest in the stocks that are capable of producing the extraordinary returns of the 4 per cent. So what characteristics might the companies need The value of an investment ut occasionally direct assault has its virtues. to produce these returns? What attributes in and any income from it is This particularly applies to academic input. turn do we need to hope to identify them? As not guaranteed and may It can have the ability to stand outside the Bessembinder writes, “The returns to active stock B selection can be very large. If the investor is either go down as well as up moment. It certainly has the ability to free itself and as a result your from the preconceptions, self-interest and necessary fortunate or skilled enough…”. So the natural capital may be at risk. operating dogma of practitioners and industry course of affairs was for us to build a relationship insiders. The very absence of skin in the game with the Professor so that we could learn how can be a virtue. Radical reappraisal is possible. to become skilled (or lucky). In March of 2018, Sometimes external authority gives the necessary James Anderson and Tom Slater, joint managers evidence and context to build on uncomfortable of Scottish Mortgage Investment Trust, travelled and unexpected rumblings of our own. to Tempe, Arizona to discuss these matters with Such has been our experience of working with Professor Bessembinder. Hendrik Bessembinder of Arizona State University. The two main areas of research that they In early 2017 Professor Bessembinder released his agreed to work with the Professor on at this early initial drafts of a paper entitled Do Stocks Outperform stage are focussed on expanding data to the rest Treasury Bills? The title itself is heretical. It is a central of the world, and trying to find common factors

12 | Taking Stock alliancetrustsavings.co.uk “The skills we need are centred themselves, he thinks the skills we need are James Budden centred on dreaming of a grand future, backing Director of Marketing on dreaming of a grand future, great people and coping with ups and downs. and Distribution His explication seems to run very counter to the Baillie Gifford backing great people and perceived market wisdom. It certainly casts doubt over the strong preferences of most investors coping with ups and downs.” James graduated MA in Classics for predictability and certainty. But still more, his from the University of Cambridge perceptions indicate that our job is much more in 1987. He joined Baillie Gifford about the imagination of the future and the behind both the 4 per cent of the companies that in 2008 having worked at Witan qualitative assessment of leadership skills than Investment Trust and Henderson have created all the return and the even more about the hard analytic numbers and confident Global Investors. James is a Director remarkable 90 companies (out of over 24,000) financial mastery. So the hope – or inspiration of Marketing and Distribution in that have contributed half the wealth created in – that Professor Bessembinder provides to us is the Clients Department. US equities since 1926. It’s this question of how that as our financial industry marches firmly and to identify the qualities that have made these unanimously up one hill, we should be running companies so successful, that has begun to unearth determinedly in the opposite direction. If we are potentially crucial insight. It looks as if there could right, that is a compelling competitive advantage. indeed be common factors behind the brilliance. But there’s one last essential to the Professor’s Although many stocks with the most stellar returns current thinking. Identifying the great investments now appear ex-growth (Exxon Mobil) or once isn’t enough. As Hendrik Bessembinder makes mortally wounded but now surgically reassembled plain it is the long-term compounding of their share (General Motors), at the start of their lives they prices that matters. This seems to us to require were all participants in markets that would become an additional set of skills such as the creativity to very large and they entered, if not first, then at imagine greatness discussed above. The compelling early stages (this has been the case from Exxon urge amongst ordinary humans for sure, but far Mobil to Google). As these names indicate, titanic more damagingly amongst that odd sub-breed founder-owners or at least missionary leaders are that are fund managers, is to take profits and lock the enduring pattern. in performance. As the old saying goes: ‘it’s never An assemblage of FTSE 100 style companies wrong to take a profit’. We believe it is often not just boasting chief executives with three-year tenure wrong, but the worst mistake that can be made. does not feature. Moreover, these companies have not been run with slide rules or their ancient and modern equivalents. They are companies that acknowledge doubt and embrace emerging S&P 500 Annual Past Performance opportunities. to 31 December each year (%) Now in a sense much of this is predictable, even if it’s more acute and structural than James 2014 2015 2016 2017 2018 Anderson and Tom Slater surmised. What is more 13.7 1.4 12.0 21.8 -4.4 striking and even more exciting is the attributes that the Professor believes investors in their turn Source: S&P. Share price, total return in US dollars. need to possess to identify the truly great potential Past performance is not a guide to future returns. companies. Just like the company founders

Important information: If you are unsure whether an investment is right for you, please contact an authorised This article is issued by intermediary for advice. A Key Information Document is available by visiting www.bailliegifford.com. Baillie Gifford & Co Limited This article does not constitute, and is not subject to the protections afforded to, independent research. and does not in any way Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not constitute investment advice. statements of fact, and should not be considered as advice or a recommendation to buy, sell or hold a All information is sourced from particular investment. If you are unsure whether an investment is right for you, please contact an authorised Baillie Gifford & Co and is intermediary for advice. Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated current unless otherwise stated. by the Financial Conduct Authority (FCA). The investments trusts managed by Baillie Gifford & Co Limited This is a financial promotion are listed UK companies and are not authorised and regulated by the Financial Conduct Authority. from Baillie Gifford & Co The index data referenced herein is the property of one or more third party index provider(s) and is used Limited. under license. Such index providers accept no liability in connection with this document. For full details, see www.bailliegifford.com/legal.

Taking Stock alliancetrustsavings.co.uk | 13 CELEBRATING 130 YEARS and looking to the future

he Merchants Trust was established in should be reassuring to investors. And, arguably, 1889 – the same year the Eiffel Tower the ability to adapt to market needs over time is T was opened, no less – so this year the another indicator of success. The Merchants Trust of Trust celebrates its 130th birthday. If we today is very different to the one that was set judge longevity as a measure of success up in 1889 but its aims are remarkably it’s fair to say that the Merchants story similar: to deliver healthy growth of is a compelling one, particularly both capital and income for the when we consider that the Trust ordinary investor, just as has navigated all manner of market it did at launch. conditions and many international conflicts over its 130 year lifetime. Longevity is a recurring theme. My tenure as Merchants portfolio manager began in 2006 following the retirement of my predecessor, Nigel Lanning, after some 22 years at the helm. Such stability, alongside Merchants’ own illustrious history,

14 | Taking Stock alliancetrustsavings.co.uk Changing the portfolio over time opportunity to buy some really good companies at attractive prices, and to let go of others or The Trust was established during an ‘investment reduce positions where valuations have held up trust boom’ at the end of the 19th century, setting better. Does this make us contrarian investors? and looking to the future out to provide investors with an opportunity to Well, inevitably if we’re trying to buy decent benefit from some of the growth industries of companies on low valuations, these opportunities the day. The initial focus was on railway usually arise when companies are somewhat expansion in the United States, Canada and out of favour, and people are worried about Simon Gergel South America. Right from the start, however, one risk or another. So, in that respect, we do Portfolio Manager the Trust diversified its portfolio across continents, tend to be quite contrarian in our approach. The Merchants Trust PLC countries and industries and this approach has By really getting to the bottom of what’s going been fundamental to its longevity – the ability on, we can sometimes identify companies that Simon Gergel is CIO of UK to adapt to a changing world. Merchants has are fundamentally sound and in a supportive Equities at Allianz Global Investors endured innumerable global crises and market environment. In these cases, we just think the and is Portfolio Manager of The crashes over its life but its spread of investments market may have got it wrong. Merchants Trust PLC. Merchants has and its evolving strategy has enabled it to weather for many years focused on a simple such storms and move forward. proposition to deliver a high and Whilst the present-day Merchants invests Reaching 130 provides a sense rising income together with capital solely in UK companies, it is notable that many of perspective growth for its shareholders. Although of these companies are multinational businesses, past performance is no guide to the It’s a great privilege for me to be the fund future, Merchants has paid a rising with the majority of the portfolio’s underlying manager of Merchants as it turns 130 years old. dividend to shareholders for 36 sales and profits still coming from abroad. So, Recent market ups and downs have challenged consecutive years. investors have exposure to global markets whilst investors, but reaching this milestone is a benefiting from the UK’s leading corporate remarkable achievement of longevity, in a world governance standards. Generating a high income obsessed with short-term market movements, has always been part of Merchants’ make-up This is a marketing political and economic risks. Having survived communication issued by and we are proud to have paid increasingly through two world wars, the great depression, Allianz Global Investors higher dividends year-on-year for the last the 1970s inflationary shock and the global GmbH, an investment 36 years. This makes Merchants one of the financial crisis, somehow today’s uncertainties company with limited liability, Association of Investment Companies’ ‘dividend over Brexit and Donald Trump’s trade spat with incorporated in Germany, heroes’, as well as one of the highest yielding China don’t seem quite so threatening. with its registered office at trusts in its sector. This is precisely why so many In the future we are absolutely resolute in our Bockenheimer Landstrasse present-day private investors hold the Trust. aim to continue growing the Merchants dividend 42-44, D 60323 Frankfurt/M, every year and providing a good home for registered with the local court Focus on the fundamentals investors’ money. We are helped in this aim by Frankfurt/M under HRB 9340, the investment trust structure which allows us authorised by Bundesanstalt für Our criteria for deciding which shares we buy to take a long-term investment perspective and Finanzdienstleistungsaufsicht focuses on the fundamentals of a business, not get buffeted around too much by short (www. bafin.de). Allianz Global Investors GmbH has including its cash flows, balance sheets, product term ‘noise‘. Above all, we wish to reassure our established a branch in the range and market position. We’re looking for current and future investors that we understand United Kingdom, Allianz Global companies that are well run, whose share prices their needs and that the Trust’s Investors GmbH, UK branch, do not fully reflect the quality of their businesses focus on long-term capital which is subject to limited and which, importantly, have the potential to pay and income growth is as regulation by the Financial attractive dividends. These are the companies that relevant today as it Conduct Authority (www.fca. we believe are able to grow their sales over time was 130 years ago. org.uk). This communication or cut costs. This enables them, in general, to has not been prepared maintain and increase their dividends over time – To find out more in accordance with legal crucial for a high income-seeking fund like ours. about Simon Gergel’s requirements designed to ensure When market sentiment swings occur, as investment philosophy, the impartiality of investment they did in 2018, we treat this as a potential visit www.merchantstrust.co.uk. (strategy) recommendations and is not subject to any prohibition on dealing before publication Important information: This is no recommendation or solicitation to buy or sell any particular security. of such recommendations. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document The Merchants Trust PLC is is disclosed or at any other subsequent date. Investing involves risk. The value of an investment and the incorporated in England and income from it may fall as well as rise and investors may not get back the full amount invested. The views Wales (Company registration no. 28276). Registered Office: 199 and opinions expressed herein, which are subject to change without notice, are those of the issuer and/ Bishopsgate, London, EC3M 3TY. or its affiliated companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or This is a financial promotion completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from Allianz Global Investors. from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been or will be made or concluded shall prevail.

Taking Stock alliancetrustsavings.co.uk | 15 Straightforward INVESTING

his process tends to lead me away from I have a very simple big index stocks. I try to buy companies investment philosophy T that other people are not looking at. That’s where I find bargains and that’s where I find which I apply when enough margin of safety. As a result, Fidelity Asian Values has the majority investing on behalf of of its capital deployed in very small companies (between £100million to £1billion market-cap). shareholders in Fidelity Mega-cap stocks, which are roughly 75% of the index, only make up about 20% of the trust’s Asian Values PLC: buy holdings. The investment trust structure gives me a great deal of flexibility to invest in these smaller good businesses, run by companies, because I am less concerned about their liquidity as I am not required to meet daily competent and honest inflows into or out of the trust. people, and buy them How my philosophy plays out in stocks at a price which leaves BOC Aviation is an aircraft leasing business, enough margin of safety which I started buying before most investors were aware of it. for mistakes or bad luck. Many airlines don’t own their planes but lease them for seven to fifteen years. BOC Aviation is the sixth largest aircraft lessor in the world. Originally spun out of Singapore Airlines and then sold to Bank of China, 25% of the company was listed on the stock exchange in 2016. I started buying the stock when it was trading 1x price to book, 6x earnings and I was getting a 7% dividend yield at that time. The business has a real competitive advantage because it is owned by a bank and therefore able borrow money at very low rates. As luck would have it, other people started noticing it in a fairly short span of time and we were able to make a reasonable return on our investment. Fufeng Group is a Chinese company with a circa 50% global market share in Monosodium Glutamate (MSG), and also produces other corn starches & animal feed additives, which is effectively a consumer staple in Asia. Fufeng Group is a very low cost producer. It is broadening its product offering and importantly, has a clean balance sheet.

16 | Taking Stock alliancetrustsavings.co.uk Straightforward INVESTING

Despite these positive attributes, the stock Hard work and patience Nitin Bajaj is cheap for a global leader. It has been Finding good businesses is easier said than Portfolio Manager misunderstood by many investors, especially done. It requires an immense amount of hard Fidelity Asian Values PLC those outside Asia, who have missed the work and patience from our analyst team consolidation taking place in the market, because we look at company after company Nitin Bajaj has been portfolio meaning the company should see better pricing after company and it could be only one out manager of Fidelity Asian Values power and margins throughout the next cycle. of every 15 or 20 that meet our strict criteria. PLC since 1 April 2015 and Fidelity LIC Housing Finance is India’s second As political, economic and market events may Funds Asian Smaller Companies largest housing finance company with a real continue to be unpredictable, I believe to be a Fund since 1 September 2013. competitive advantage because of its low cost successful investor you need a constant philosophy Nitin joined Fidelity Worldwide of borrowing (it has the highest credit rating to which you stay true. In adopting this approach Investment in 2003 as a research analyst, following four years in the space) and low cost of operations – and combining it with a skilled team of analysts who it shares a distribution network with Life working with KPMG in India as a are willing to work hard, we hope to deliver superior business analyst. In 2007, he was Insurance Corporation which is its parent returns for shareholders over the long term. promoted to assistant portfolio company and India’s largest insurer. manager for the Fidelity Global Special Situations Fund in the UK Important information: Past performance is not before moving to Fidelity’s Mumbai a reliable indicator of future results. The value of office to manage two of the “I try to buy companies investments can go down as well as up so investors company’s domestic Indian equity may get back less than they invest. funds, which were available to that other people are not local Indian investors. This fund invests in overseas markets and the looking at. That’s where value of investments can be affected by changes Nitin holds a Bachelor of in currency exchange rates. This fund invests in Commerce degree from the I find bargains and that’s emerging markets which can be more volatile University of Delhi, an MBA than other more developed markets.This fund uses from Insead in Singapore and where I find enough financial derivative instruments for investment is a member of the Institute of purposes, which may expose the fund to a higher Chartered Accountants of India. margin of safety.” degree of risk and can cause investments to experience larger than average price fluctuations. This fund invests more heavily than others in Its assets (mortgages) react to interest smaller companies, which can carry a higher risk rates faster than the company’s liabilities, so because their share prices may be more volatile throughout the falling rate environment over than those of larger companies. recent years, the company saw its Net Interest This information does not constitute investment Margins shrink – putting many potential advice and should not be used as the basis of any investors off. With rates now beginning to rise, investment decision, nor should it be treated as this trend will reverse, so I have been able to a personal recommendation for any investment. If you are unsure about the suitability of an buy a long-term compounding business at just investment you should speak to an authorised 10x price-earnings. financial adviser. Investors should note that the Each of these companies, though operating views expressed may no longer be current and may in very different markets, has potential for have already been acted upon. Reference growth, but is protected by a real competitive to specific securities should not be construed as advantage or barrier to entry – which is key a recommendation to buy or sell these securities to how I select businesses in which to invest. and is included for the purposes of illustration only. This article is issued by Financial Administration Services Limited, authorised and regulated in the UK by the Financial Conduct Authority. Fidelity, Fidelity International, The Fidelity International logo and F symbol are trademarks of FIL limited. UKIT00008

This is a financial promotion from FIL limited.

Taking Stock | 17 FACTS, FIGURES AND HUMANS FACTOR 1: Skin in the game Investment research probably brings to mind piles Does the manager invest their own of literature, covering factors like charges, money in their funds? This is known as ‘skin in the game’, and some performance, risk ratings and investment objectives. investors argue that if a fund is good enough for them to invest in, it should be But there are also some human clues investors good enough for the manager(s) to do likewise. Fundsmith’s Terry Smith is an example of a might pick up on when working out where to put high-profile investment manager who invests their money. Sara Wilson takes a look. substantial amounts in his funds, seeing it as aligning his interests with that of shareholders 1. He has said that he “wouldn’t trust” a manager without skin in the game 2. The most recent ‘Skin in the game’ report ow long has the manager been there? by analysts Canaccord Genuity found that 58 How experienced are they? Do they invest chairs or directors of Investment Trusts have their own money in the fund? These are personal holdings worth more than £1m, while H 67 managers or management teams invest just some of the potential human factors at play 3 when it comes to researching how a fund might over £1m in their trusts . perform. But can they really give you any kind But while it can be reassuring for investors of hint on a fund’s future prospects? to see managers committing financially to their As you read on, remember, past performance own funds, there’s no clear evidence that it boosts is not a guide to future performance. performance. Indeed it could be argued that when their own money is at stake there is a risk of managers not being as objective as they should be, or of allowing emotion to influence their decisions.

FACTS AND FIGURES FACTOR 2: Manager moves Turn to An investor’s guide to data Research in 2014 by the sources on page 4 for some of the Cass Business School and more traditional tools you can use to the University of Nicosia did assess a fund’s potential. find clear evidence that a change of fund manager can impact

18 | Taking Stock alliancetrustsavings.co.uk on performance. For instance, when managers for a decade or more with the wider manager exited funds that had been performing well there population. While the 10-year performance of was a marked deterioration in returns, while the former group looked better, there was little underperforming funds typically improved once difference in the year-to-year performance. But the manager departed. they did find some indication that longer servers The study, which looked at more than 900 had certain traits relevant to positive performance, UK manager changes between January 1997 like low fees, more concentrated portfolios and a and December 2011, concluded that firms had bias towards smaller companies 6. Sara Wilson been “relatively successful in replacing bad Head of Platform Proposition managers with better managers, but relatively FACTOR 5: Gender Alliance Trust Savings Limited unsuccessful at finding equivalent replacements for their top performing managers” 4. The vast majority of fund managers Sara joined Alliance Trust Savings are male, but there’s no real evidence in March 2013 as Head of Platform FACTOR 3: Teamwork this gives them an edge when it comes Proposition, taking on responsibility to running investment funds. for the products and investment A study of Morningstar data for Research by Morningstar last year 7 made it choice available on the platform. 4,000 US funds by researchers clear the low number of women in the Previously, she worked for Standard Sergei Sarkissian and Saurin Patel, industry is nothing to do with performance. Life as International Proposition revealed that those led by teams Its main conclusion was that gender is not a factor Manager. Before moving to Scotland, Sara worked for Xansa, typically outperformed those led by individuals. in performance. But there was some indication a technology outsourcing company. They attributed this phenomenon partly to team investors might be better off if more women were She received a BA Honours in members keeping a lid on their colleagues’ running funds. A test involving picking funds International Business from the overconfidence, with the effect based solely on the manager’s gender found University of Teesside and a Post of keeping trading activity down. there would be better results with all-female teams Graduate Diploma in Marketing They suggested too that teams of three in both equity and fixed-income asset classes. at Napier University, Edinburgh. were most likely to produce good outcomes, pointing to trade-offs between “the benefits of collective wisdom and increasing 1. Morningstar – Can Terry Smith Continue Impressive coordination costs in large groups” 5. Performance? 09/04/18 There is perhaps a lesson for all investors 2. Citywire – Terry Smith pours £115m into his top here – asking others for their opinions can result performing fund. 21/09/16 3. Investors Chronicle – Does your investment trust have in constructive challenge and help prevent skin in the game? 03/05/18 your emotions and investment blindspots from 4. Cass Business School – What impact does a change of leading you into poor decisions. fund manager have on mutual fund performance? 07/14 5. Journal of Financial and Quantitative Analysis – Important information: This To Group or Not to Group? Evidence from Mutual general information is provided FACTOR 4: Experience Fund Databases. 29/04/12 to support you in making your 6. own investment decisions. It is Evidence here is more mixed than Cass Business School – New study finds that a fund manager’s experience and performance do not a recommendation to buy you might expect. Another study not always go hand in hand. 11/10/16 or sell. Please be aware that by Cass compared the records of 7. Morningstar – Female Fund Manager Performance: the value of investments can fall managers who had been at the helm What Does Gender Have to Do With It? 08/03/18 as well as rise so you could get back less than you invest. Past performance is not a guide to future performance. This article is issued and approved by Alliance Trust Savings Limited. Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767; registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. This is a financial promotion from Alliance Trust Savings Limited.

Taking Stock | 19 he UK equity market ended 2018 at a two-year low. This volatility was driven by macroeconomic factors that all investors, even those primarily focussedT on stock selection, were obliged to navigate. Entering the new year, perceived risks surrounding a slowdown in global economic growth, US interest rate policy, Sino-US trade wars and the rise of populism in Europe continue to dominate debate. At home, we stand at a political crossroads. Despite months of negotiations, fierce rhetoric and political pageantry, the nature of Britain’s exit from the European Union remains in doubt.

Despite such negativity, data suggests that the UK’s economic outlook is moderately robust. Economic indicators point to continued steady, if unspectacular, economic growth in the UK. We have seen a recovery in real wage growth over the past year; wage growth is faster than inflation. Meanwhile the number of people in work increased by 350,000 in 2018, more than three times the increase in the size of the working age population. This near-record low unemployment is set against a backdrop of 850,000 job vacancies – a record high. Consequentially it feels sensible to expect employment growth to remain robust. In 2019 we are also likely to see further economic stimulus from an uptick in government spending. Growth in real government spending (adjusted for inflation) has been minimal since the recession. Now that the budget deficit 1 has fallen to less than two per cent of gross domestic product (GDP) 2 and the current budget has moved into surplus, the government intends to step up its spending plans, as announced in the Chancellor’s Autumn statement. The combination of continued employment growth and growth in real wages should help to strengthen consumption growth. Meanwhile, consumption growth, coupled with an increase in government spending, should lead to continued real GDP growth. OPTIMISTIC INVESTING in a challenging market

20 | Taking Stock alliancetrustsavings.co.uk Against this backdrop the UK equity investor our economy to stimulate growth. This includes must move cautiously. However, I remain optimistic catastrophe insurers, alternative lenders (non- of the UK’s prospects and I have positioned the banks) and other non-core financials such as portfolios under my management accordingly 3. litigation financing. As investors have moved away from domestically As we move through 2019 macroeconomic exposed businesses, largely due to Brexit fears, factors both at home and abroad will no doubt I have steadily increased my exposure to UK continue to influence the performance of the UK companies that source the majority of their equity market. However, as I anticipate a revision revenues from the UK. Under a cloud of persistent to more rational pricing, I remain confident that negativity, the market’s indiscriminate approach my portfolios remain well diversified, with a has created opportunities to buy shares in many range of income generating companies, which Mark Barnett companies with attractive fundamentals that are trading at attractive valuations offer opportunity Head of UK Equities trading on share prices that are, to my mind, for income and capital growth. Catalysts for any Invesco below the companies’ intrinsic value. The most reassessment of the UK equity market’s prospects obvious opportunities, to my mind, lie within must surely include a better-than-expected Mark is responsible for the retail and real estate. outcome for Brexit. To my mind, a positive management of a number of UK equity portfolios, with a focus on outcome for the UK equity market rests on an the management of open and end to the political no-man’s land which has closed ended vehicles. perturbed investors for the past two years. “I have also sought to Mark began his investment career with Mercury Asset Management diversify the portfolio by Investment risks in 1992 and joined our company in 1996. Since then, he has become emphasizing exposure to The value of investments and any income one of the team’s most experienced businesses which are not will fluctuate (this may partly be the result of fund managers, specialising in exchange rate fluctuations) and investors may UK equity income investing. typically reliant on the not get back the full amount invested. He graduated in French and When making an investment in an investment Politics from Reading University in growth in our economy trust you are buying shares in a company that 1992 and has passed the associate is listed on a stock exchange. The price of the examinations of the Association to stimulate growth.” for Investment Management and shares will be determined by supply and demand. Research (AIMR). Consequently, the share price of an investment trust may be higher or lower than the underlying As well as the tilt towards domestic value net asset value of the investments in its portfolio opportunities, my portfolios remain well balanced and there can be no certainty that there will be with significant exposure to the international liquidity in the shares. earners of the FTSE All-Share index, and sectors The use of borrowings may increase the such as oil and tobacco are prominent. In volatility of the NAV and may reduce returns the integrated oil sector, companies are using when asset values fall. technology, standardisation and simplification to The Edinburgh Investment Trust Plc uses reduce costs. Management teams have succeeded derivatives for efficient portfolio management to such an extent that it is cheaper to mine one which may result in increased volatility in the NAV. barrel of oil today than it was in 2013 when the oil Perpetual Income and Growth Investment Trust price was over US$140 per barrel. To my mind this Plc may use derivatives for efficient portfolio superior cash discipline will enhance the industry’s management which could result in increased ability to pay shareholders income through volatility in the NAV. dividends. Meanwhile, in tobacco, increasing regulation and the rise of industry disruptors, such as US vaping firm JUUL, have spooked investors over the past eighteen months. However, to my 1. A budget surplus or deficit refers to the value of a government’s spending versus its income. If spending mind the pessimistic consensus fails to appreciate exceeds income then the budget is in deficit. If spending the ability of the tobacco sector to remain agile and is below income, the budget is in surplus. cash generative within an evolving industry and 2. A measure of the size of an economy. GDP measures the which includes a tighter regulatory framework. monetary value of (a measure of the market value of all OPTIMISTIC Meanwhile, I have also sought to diversify the the final goods and services produced within an economy) This article is issued by Invesco Fund Managers Limited, portfolio by emphasizing exposure to businesses 3. Mark is named manager of the Edinburgh Investment Trust which are not typically reliant on the growth in Plc and Perpetual Income and Growth Investment Trust Plc. Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by Important information: Where individuals or the business have expressed opinions, they are based on the Financial Conduct Authority. current market conditions, they may differ from those of other investment professionals and are subject INVESTING This is a financial promotion to change without notice. from Invesco Fund Managers For more information on our products, please refer to the relevant Key Information Document (KID), Limited. in a challenging market Alternative Investment Fund Managers Directive document (AIFMD), and the latest Annual or Half-Yearly Financial Reports. This information is available using the contact details shown.

Taking Stock alliancetrustsavings.co.uk | 21 Investment trust TOP s Take a look at which investment trusts Alliance Trust Savings’ customers have2 been buying.0 These tables are based on the monetary value of purchases made by our investors on the dates stated below. They do not give any indication of the investment performance of the investment trusts stated. This information is provided for educational and informational purposes only.

Top 20 for 2019 to 28 February Top 20 in February 2019

1 Scottish Mortgage Investment Trust 1 Scottish Mortgage Investment Trust 2 Alliance Trust 2 Finsbury Growth & Income Trust 3 Finsbury Growth & Income Trust 3 City of London Investment Trust 4 Worldwide Healthcare Trust 4 Alliance Trust 5 City of London Investment Trust 5 F&C Investment Trust 6 6 7 J.P. Morgan Japanese Investment Trust 7 Worldwide Healthcare Trust 8 Personal Assets Trust 8 J.P.Morgan Japanese Investment Trust 9 HgCapital Trust 9 Murray International Trust 10 AEW UK Reit 10 Edinburgh Worldwide Trust 11 F&C Commercial Property Trust 11 AEW UK Reit 12 Caledonia Investment Trust 12 HgCapital 13 F&C Investment Trust 13 Caledonia Investment Trust 14 Edinburgh Investment Trust 14 Jupiter European Opportunities Trust 15 15 16 Fundsmith Emerging Equities Trust 16 British Empire Trust 17 Scottish Oriental Smaller Companies Trust 17 Edinburgh Investment Trust 18 Dunedin Income Growth Investment Trust 18 Pantheon International 19 Murray International Trust 19 Witan Investment Trust 20 Lowland Investment Company 20 Scottish Investment Trust

Investments can go down as well as up and investors can get back less than they originally invested. If you are unsure if a particular investment trust is suitable for you, you should seek independent financial advice before making any investment decision. Investments trusts may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV), meaning that a relatively small movement down or up, will result in a magnified movements in the same direction, of that NAV. This may mean that you could get back nothing at all.

22 | Taking Stock alliancetrustsavings.co.uk GO PAPERLESS FOR A CHANCE TO WIN £1,000 CASH

By choosing to receive your Account documents online, you can save more than just the environment. You will also save on our £25 (plus VAT) paper charge. Plus, if you make this change between 5 February and 5 April 2019, you’ll automatically be entered into our competition to win a £1,000 cash prize. Terms and conditions apply.

To find out more, visit www.alliancetrustsavings.co.uk/paperless

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.

Taking Stock alliancetrustsavings.co.uk | 23 WAYS TO DO BUSINESS

Manage your account online at alliancetrustsavings.co.uk • Buy and sell online • Same day set-up and trading (conditions apply) • Online monthly dealing

Call 01382 573737 Our real-time telephone dealing service is available during normal UK market opening hours. Calls may be recorded for training and monitoring purposes.

Alliance Trust Savings Limited PO Box 164 8 West Marketgait Dundee DD1 9YP Send us your instruction form and cheque and we’ll process your trades. For full details of all charges, please visit alliancetrustsavings.co.uk.

Speak to your financial adviser

Alliance Trust Savings Limited does not give advice. If you are unsure whether an investment is right for you, you should seek professional advice. The articles in this magazine from other investment trusts have been paid for and as such are published without any representation or endorsement made by or from us of any kind whether express or implied, including but not limited to the opinions expressed, appropriateness of any recommendation made, fitness for a particular purpose, compatibility with any investment strategy or accuracy. We will not be liable for any indirect or consequential loss or damage whatever (including without limitation loss of business, opportunity, data, profits) arising out of or in connection with your reliance on any article or the contents of any article contained in this magazine.

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.

ATS GEN MAG 0031 (Spring 2019)