Yahoo Finance Questor: merger with top-performing rival offers redemption for our global stocks laggard
October has been a busy month for Questor’s investment trust picks. Three of the trusts recommended by this column are the subject of shake-ups driven by their boards and shareholders, all of which merit scrutiny.
The most significant comes from the Scottish Investment Trust, the laggard global stocks fund that Questor last advised readers to hold in June.
Back then this column was encouraged by the board’s announcement of a review of its investment management arrangements in an attempt to address the trust’s perennial underperformance.
A five-year return of just 25pc, around a third of the 79pc delivered by the global stock market, led the board to propose last week a merger with rival trust JP Morgan Global Growth & Income.
Under the plans, which require approval from the shareholders of both trusts, Scottish IT’s investors would gain a stake in the better-performing JP Morgan trust.
The difference in returns from the two trusts, which both pay dividends to shareholders from a portfolio of global stocks, is striking. Over five years the JP Morgan trust has doubled investors’ money, delivering four times Scottish IT’s returns.
Nor will Scottish shareholders be deprived of dividends. The trust lays proud claim to have grown its dividend in each of the past 37 years and last year distributed 23.2p, which gives the shares a 2.8pc yield at the current share price.
JP Morgan Global Growth & Income doesn’t boast quite as illustrious a dividend heritage – it has grown its payout for just five years – but last year’s 13.16p equates to a yield of 3pc. Furthermore, the trust is committed to paying out at least 4pc of its assets in dividends every year, so this year’s payout should rise again.
The impact of the announcement on Scottish’s shares has been marked. They have surged since the proposals became public, narrowing the discount from as wide as 14pc earlier this month to just 5pc.
That’s because of the much higher regard in which investors hold the JP Morgan trust. Shares in that trust have traded at an average premium of 2.8pc over the past year.
All of this leads Questor to advise readers to continue to hold on to the shares. The only caveat would be for those readers who hold Scottish explicitly for its “value” style of investing in out-of-favour companies, which the JP Morgan trust does not share. Readers who want a trust whose style is similar to Scottish IT’s may find another Questor pick, Murray International, a better fit.
Questor says: hold
Ticker: SCIN
Share prices at close: 815p
Update: Gresham House Strategic
Richard Staveley is returning to run this Questor pick just six months after the “micro-cap” investment trust announced his resignation.
His return is the result of the trust’s appointment of Harwood Capital as its new manager, subject to regulatory approval, in place of Gresham House Asset Management, which Staveley had left.
His return will reinstate a manager with a strong track record. Staveley is responsible for the bulk of the 83pc return since Questor tipped the trust, which will be renamed Rockwood Strategic, in November. Hold.
Questor says: hold
Ticker: GHS
Share prices at close: £18.05
Update: Fidelity Emerging Markets
Fidelity’s appointment as manager of this renamed trust, formerly called Genesis Emerging Markets, has got off to a rocky start.
Last week the trust conducted a “tender offer”, which Questor had recommended readers take up, for 25pc of its shares, buying them back at a 2pc discount to net asset value. It was hugely oversubscribed: shares that accounted for 85pc of the trust’s value were offered up for sale.
The shares have fallen to a 13.2pc discount, but Questor does not see this widening much further and the new managers have a good record of investing in emerging markets. Hold.
Questor says: hold
Ticker: FEML
Share prices at close: 835p
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