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Securities Trust of Scotland
Income investors looking for a trust to steer them through the current volatility may wish to consider James Harries ’ vehicle
A trust yielding 2.6 % may not instantly grab income investors ’ attention – this figure is well below the 3.6 % currently being offered by the FTSE 100 . However , Securities Trust of Scotland manager James Harries claimed the potential for dividend growth is just as important as a high starting figure . “ We ’ re seeking to balance the income that the trust is generating , but also uphold the quality of the overall portfolio – in our experience , if you overreach for yield , it tends to ultimately compromise the quality of the underlying businesses in which you ’ re investing ,” he said . Harries avoids cyclical and capitalintensive companies , investing instead in businesses with high returns on capital that can be sustained by durable competitive advantages . “ These are companies with low risks to their earnings , which permit sustained high levels of profitability ,” he said . “ We pay particular attention to how management allocates capital , and typically avoid highly acquisitive and indebted companies .” Having identified companies that meet his quality standards , Harries assesses them on three further criteria : sound balance sheets which allow management teams to allocate capital flexibly ; management teams which act in the best interests of shareholders ; and a price that underestimates future cashflows . This strategy doesn ’ t always work , and there may be periods of
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