Jeff Prestridge: my big problem with Scottish Mortgage and other trusts

Securities Trust of Scotland has done something other trusts should copy, argues our mischievous columnist who also makes three serious points on the evolution of the investment trust industry.

Although some money experts will disagree with me – not for the first time, I hasten to add – I firmly believe that investment trusts are one of the best ways for private investors to build long-term wealth.

Yes, I know, it’s a sweeping statement that can be picked apart by the picky brigade – and with some justification. After all, these trusts come in all shapes and sizes and generate returns by investing in all kinds of assets. They are not a homogeneous universe. There are good trusts and some pretty awful ones.

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Yet, for those investors who want to commit money to the stock market without losing too much sleep, there are plenty of trusts out there that provide suitable homes – indeed excellent homes.

At their very best, trusts are a cost-effective way to gain exposure to equities and other assets; their shares, listed on the London Stock Exchange, can be bought and sold easily; and the annual charges they levy are not overly prohibitive.

At their worst, some are esoteric and their investment modus operandi unfathomable to all but the most professional of professional investors.

Investors who want to learn more should visit the very friendly website of the sector’s trade organisation, the Association of Investment Companies (theaic.co.uk). It’s a veritable feast of information that can keep you entertained for many an hour at the weekend when the sun disappears and rain drops descend from gloomy skies (yes, I’m talking about my Sundays).

The sector currently manages a humongous £265 billion of assets across nearly 380 stock market-listed trusts. A couple of trusts such as Scottish Mortgage (LSE:SMT) and F&C (LSE:FCIT) are so massive (and investor popular) that they are now proud constituents of the FTSE 100 index.

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But just because I’m a fan doesn’t mean I think all is hunky dory in the investment trust camp. Far from it. My view is that the industry cannot rest on its laurels. It must continue to evolve and strive to do things even better on behalf of shareholders, in the process providing outstanding value for money.

An example of this evolutionary process is the recent renaming of Securities Trust of Scotland, a £210 million trust which started life 134 years ago as Reversionary Association Limited – before becoming an investment trust in 1925.

Its board – all investment trusts, like all listed companies, are overseen by boards – decided that the trust’s name was no longer fit for purpose. Their view was that it gave investors no idea as to what went on under the fund’s investment bonnet. A fund investing in securities? Bonds? Equities? A backer of Scottish-based businesses?

As a result, the trust has now been badged STS Global Income & Growth Trust (LSE:STS). This is a big improvement on what went before because it now gives potential investors a good idea of what it does for a living – namely, investing globally in search of a combination of income and (capital) growth return.

On the downside, it doesn’t indicate that the fund is actually managed by investment house Troy. As for STS? Just google it and you can see that the acronym is associated with everything from medical conditions (soft tissue sarcoma, secondary traumatic stress), through to the defunct Scottish Tartans Society and a wrestling hold (step-over toehold sleeper). For the record, I don’t recollect tough-nut wrestler Mick McManus performing an STS on Jackie Pallo in the 1960s.

So, my question to the STS board is: why did you not just go the full hog and call the trust Troy Global Income & Growth, a name that doesn’t clash with any other existing Troy investment fund? At least, then, the proverbial tin’s label would have reflected all the trust’s key ingredients.

Of course, the name change is all about marketing and nothing about investing (which remains the same as before). So it’s incidental in the wider scale of investment things, but other trusts should follow the route STS has taken.

In a nutshell, they should shed names that allude to the investment trust industry’s 155-year history and its role in financing the rapid economic development of North America – and replace them with labels that today’s investors can understand straightaway. Nostalgia has no place in the hard-nosed world of investing.  

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Being slightly mischievous, may I suggest a few name changes. For example, Scottish Mortgage, a trust investing in tech start-ups and big tech companies, should become Baillie Gifford Enterprise or Baillie Gifford Technology.

Meanwhile, Bankers (LSE:BNKR) could be labelled Janus Henderson Global Income in light of its geographically diversified portfolio, its investment managers and income bent (56 years of dividend increases).

Bedfellow trust City of London (LSE:CTY) should become Janus Henderson UK Income (another one with 56 years of dividend growth under its belt).

May I make three other points on the evolution of the investment trust industry.

First, it’s essential that individual trusts continue to reduce their annual charges, especially as the assets under their wing grow. It’s a welcome feature of the sector, but the clipping of charges must not stop. It must ramp up. Value for money should be the order of the day.

For example, JPMorgan Claverhouse (LSE:JCH) (another trust with a name ripe for change) will next month reduce charges on the trust’s first £400 million of assets, from 0.55% to 0.45%.

Brilliant, but it’s only one of a handful to announce a reduction in fees this year. More please.

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Second, trusts have to do more in terms of engaging with shareholders, through communicating with them on a regular basis and inviting them to AGMs. It is beginning to happen - I recently accepted an invitation to attend the BlackRock World Mining Trust (LSE:BRWM) AGM and learned quite a lot. Investors need a little TLC (Tender Loving Care) on top of their investment profits.

Finally, there are some trusts out there whose time has been and gone – they’re drifting along, serving little purpose, and should be merged away or wound up.

Analysts at investment bank Jefferies International said as much recently, stating: ‘It is plain as a pikestaff to anyone paying attention that there are too many investment trusts’. Consolidation – trust mergers – should be the order of the day. I agree.

Oh, one more thing. Putting my money where my mouth is, I have changed my name to Jeff Investment Trust.

Jeff Prestridge (Jeff Investment Trust) is Group Wealth & Personal Finance Editor of DMGT.