In focus
[ TRUST ]
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Recent strong performance has helped this income trust close its
historically high discount
Securities Trust
of Scotland
TRUSTNET
The manager called himself “laser-
focused on cash flow”, adding: “We
don’t give two hoots about earnings
in terms of dividend cover. We want
a company to grow its earnings and
cash flow, but in terms of dividend
cover, cash flow after capital
expenditure is most important.”
FACT BOX
MANAGER: Mark Whitehead / LAUNCHED: 28/06/2005 / PREMIUM/DISCOUNT: +0.44% /
OCF: 0.9%
CROWN RATING
PERFORMANCE OF TRUST VS SECTOR
AND INDEX UNDER MANAGER
Securities Trust of Scotland
(72.86%)
IT Global Equity
Income (57.56%)
MSCI World High
Dividend Yield (49.02)
80%
70%
60%
50%
40%
30%
20%
10%
0%
17
-10%
improvement over the past two years
suggests he is on the right track.
Securities Trust of Scotland aims
to produce a rising income over the
long term; it is currently yielding 2.92
per cent. Whitehead’s team starts
by taking the MSCI AC World index
and screening out the bottom 50 per
cent of dividend yielders over the
past year, then sifting out the bottom
50 per cent of those left in terms
of return on invested capital. This
leaves about 500 stocks.
After discarding those with obvious
flaws, such as excessive amounts of
debt, each analyst will put together a
“high-level thesis” on one stock every
couple of weeks which they will
present to the rest of the team.
If the other analysts are also
enthusiastic, they start their in-
depth research stage, which includes
putting together a five-year forecast.
U
p until relatively recently,
the Securities Trust of
Scotland was something of
an anomaly in the IT Global Equity
Income sector, trading at a high
single-digit discount while most
of its peers were on premiums.
However, an improvement in
underlying performance and a
concerted marketing effort have
pushed the trust onto a slight
premium – now Invesco Perpetual
Select is the only trust in the sector
trading below NAV.
Mark Whitehead became manager
in May 2016 but initially struggled
and the trust underperformed its
peers and benchmark. Whitehead
said he would characterise the first
18 months to two years as a period
of change when he bedded in a
new team and evolved his process.
However, he pointed out the
“Not that we think we’re particularly
good at forecasting,” said Whitehead,
“but we can get a good idea of what
sort of growth rates in organic
revenues a company will produce. We
can look back across 10 years of data
and say, what happened when we last
had a recession?"
Source: FE Analytics
trustnet.com