Investment trust weekly round up – Mid Wynd’s unexpected change of management. Adviser pick: JPMorgan European Smaller Companies fund

2nd May 2014


The Mid Wynd International investment announced an unexpected change of management this week writes investment journalist Cherry Reynard.

The trust had been run by Baillie Gifford’s Michael MacPhee for 15 years, but following his retirement the board has decided to shift management to Artemis. The Global Select team of Simon Edelsten, Alex Illingworth and Rosanna Burcheri took over the running of the trust on 1 May.

At first Artemis seems like an unusual choice: The one closed-ended fund it manages – the Artemis Alpha fund – is bottom quartile over one and three years. Equally, the open-ended Global Select fund run by the team has also had a weak year. The trust had been a strong performer under Baillie Gifford’s management, who have unquestioned skill in running global growth trusts.

However, the board of Mid Wynd may be looking to Edelsten’s record on the Electric & General investment trust, which he ran while at Taube Hodson Stonex. Equally, the Global Select fund remains substantially ahead of its benchmark since launch. They may also feel that the trust had been overshadowed by some of its giant peers in the Baillie Gifford staple. Either way, it is undoubtedly a new start for the trust.

If the Mid Wynd fund is hoping from go from strength to strength, the Phaunos Timber fund continues to weaken.  Over the week, the £141 million trust revealed losses of $55.4 million for 2013, up from $43.2 million in 2012. This is partly attributable to currency weakness, but it is also because the trust was forced to revise the valuation of a number of its younger plantations, which is likely to cast doubt on the remaining valuations in the portfolio. The group also scrapped its annual dividend for 2013 and said it would probably not pay one next year either. The news is unlikely to do anything to address the trust’s chunky discount.

Alliance Trust also reported this week for the first quarter, showing a total return of 0.9%, but this included some narrowing of the discount. Net asset value was hit by the trust’s exposure to the UK insurance sector and performance has yet to see a turnaround under the guidance of Ilario de Bon. The trust remains bottom quartile in the global sector over one year. The trust’s has taken a higher exposure to equities over the period and marginally reduced fixed income weightings, but it will take more than tinkering at the edges to turn around this £3.2bn behemoth.

The Schroder Oriental income trust also had a rare run of weak performance. The six month period to 28 February saw the NAV dip by 2.5% and there was also some widening of the discount. Manager Matthew Dobbs remains confident that Asia can stage a recovery, saying there has been enough uncertainty – for example over China’s growth and the impact of US monetary policy changes – to justify the volatility in currencies and stock markets, but ‘it is difficult to feel too concerned about a region with so many longer term attractions’.

Henderson-run Law debenture, in contrast, had a punchy first quarter. Net asset value rose 2.2% against a drop of 0.6% for the trust’s FTSE All-Share benchmark.

This week’s fund pick

Stephen Peters, analyst, Charles Stanley

 JPMorgan European Smaller Companies 

Peters says: “Manager styles go in and out of favour. In 2008/09, JPMorgan’s funds had a very difficult time, but the group’s style has come back into favour. As a result, this fund has been doing well. It is not quite the best in the sector, but has other advantages such as some yield, a 10% discount; it is liquid and has a good long-term track record.

“Certainly it is bet on improving economic growth, but there is earnings momentum in European smaller companies and that is leading to share price momentum. It may not be one to hold to through the cycle, but it is a trust we like, the management is good and its performance should continue.”

Ratings updates

Winterflood issued the following updates:

Phaunos Timber – “Shareholders are still likely to be disappointed with the recent results. The scale of the write-down in the value of Green Resources is particularly frustrating and, in our view, will reduce confidence in the portfolio’s valuations….The fund currently trades at a 43% discount to its NAV and on the face of it this represents a value opportunity. However, in our view, there is still considerable work to be done to ensure the validity of the assets in the portfolio. More positively the Chairman reconfirmed that he expects the fund to break even at an operating cash flow level during 2014. Although the change in management arrangements is a positive development and the Board is clearly focused on delivering value for shareholders, we believe performance will have to improve markedly if the fund is to pass its continuation vote in 2016.”

Strategic Equity Capital – “This is building an impressive performance record and we like the managers’ differentiated investment approach, which applies private equity techniques to public markets. We also believe that the focus on truly small cap companies means that it is complementary to its peers, many of which have significant mid‐cap exposure. Clearly the concentrated nature of the portfolio means that stock specific risk is higher, although the fund’s performance has been delivered with relatively low volatility. This would appear to reflect the absence of gearing at the fund level and the managers’ focus on quality companies with strong balance sheets…We therefore continue to recommend the fund for investors seeking exposure to UK smaller companies.”

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