TRUSTNET
IT UK Equity FTSE All Share Edinburgh Investment
Income (22.52%) (18.22%) Trust (-2.19%)
30%
25%
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15%
10%
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-15%
A bold style shift
The manager change by the European
Trust was “perhaps the boldest move
by a board in recent years”, says
Kepler Trust Intelligence’s head of
with shareholders at the AGM if
even your 10-year numbers are
lacklustre and you have spent a few
years of annual reports excusing the
underperformance on the grounds
that the manager’s style is out of
favour ‘at the moment’.”
Godfrey suggests this type of
corporate action raises questions
about a board’s role in hiring and
firing managers. “Clearly that is part
PERFORMANCE OF TRUST VS SECTOR AND INDEX OVER 3YRS
“It is vitally important that a
board understands a manager’s
style and doesn’t react to periods
of underperformance that might
be in line with expectations,”
says Hughes. However, he notes
that boards are taking their
responsibilities more seriously
when it comes to persistent
underperformance.
“There’s a general trend towards
sleepy old investment trust boards
realising that they need to be more
active in carrying out their duties
to ensure the assets are managed
properly. I’ve been doing this for 20
years and a change in manager on
a trust felt like an incredibly rare
event for most of that time.”
He adds that 46 per cent of the 374
trusts in the market have had the
same asset management group at
the helm for five years or more.
investment trust research, William
Heathcoat Amory, because it involved
an about-turn on investment style,
from value to growth.
Ideally a manager would be allowed
to run their style over a market cycle,
even if it underperforms for some of
that time. However, Edison’s director
of investment companies research
Sarah Godfrey says boards need
to draw the line somewhere: “The
problem with that, particularly as
regards value managers over the last
10 years or so, is how long can you
allow for a cycle? For the chairman
it’s going to be a hard conversation
Ideally a manager would be
allowed to run their style
over a market cycle, even if it
underperforms for some of
that time
In Barnett’s case, the timing of the
manager change was questioned as
it meant investors would miss out
on any post-election bounce in the
domestic stocks he favoured.
Edinburgh’s board says it
understands that “all good-
conviction fund managers experience
periods of underperformance,
and a focus on long-term results
requires shareholders sometimes
to bear bouts of relative weakness,
especially during times when the
fund manager’s style is out of favour”.
However, in this case the stock-
selection errors were the straw that
broke the camel’s back.
[ BOARDS ]
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Source: FE Analytics
trustnet.com