AIC Conference For Directors The Wealth Manager’s View For professional advisers only 20 th April 2010 James Burns Director Head of Multi-Manager Desk 0207 131 4714 Smith & Williamson Investment Management A trading name of NCL Investments Limited Member of the London Stock Exchange and of Smith & Williamson Investment Management Limited Both companies are authorised and regulated by the Financial Services Authority 25 Moorgate London EC2R 6AY
Transcript
AIC Conference For Directors
The Wealth Manager’s View
For professional advisers only
20th April 2010
James Burns
Director
Head of Multi-Manager Desk
0207 131 4714
Smith & Williamson Investment Management A trading name of
NCL Investments Limited Member of the London Stock Exchange
and of
Smith & Williamson Investment Management Limited Both companies are authorised and
Closed-Ended versus Open-EndedInvestment Trusts versus OEICs/Unit Trusts: compound out/underperformance 10 years to 31 st December 2009 (%)
-3
-2
-1
0
1
2
3
Global Emerging
GlobalGrowth
UK Growth
North America
Europe ex UK
UK Growth & Income
Far East ex Japan
Japan
2.9
2.4
1.61.3 1.2
0.5
-0.9 -2.7
Source: Morningstar
7
Has performance been rewarded?
• Growth in FUM over past decade:
Open-ended up 90% to £481bn*
Closed-ended up £2bn to £80bn*
“ I do not think the investment trust industry is capable of being revived. It’s run by a lot of fuddy duddies who have no place in the industry”
Peter Hargreaves, Financial Times, Monday 22nd February 2010
*Smith & Williamson Investment Management
8
Buyback Activity
Witan
Scottish Mortgage
Scottish
RIT Capital Partners
Murray International
Monks
Foreign & Colonial
Caledonia
British Empire
Alliance
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
10% 15% 20% 25% 30% 35% 40%
% of Initial Share Capital Bought Back (5 years)
5 Y
ear
Av
erag
e D
isco
un
t (P
ar)
Source: Morningstar / Numis Securities as at 30th March 2010
9
Performance often drives discounts
Witan
Scottish Mortgage
Scottish
RIT Capital Partners
Murray International
Monks
Foreign & Colonial
Caledonia
British Empire
Alliance
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
0.1 0.2 0.3 0.4 0.5 0.6
5 Year Sharpe Ratio (NAV)
5 Y
ear
Av
erag
e D
isco
un
t (P
ar)
Source: Morningstar as at 30th March 2010
10
Discount Control Mechanisms
• ¾ of trusts have some sort of DCM in place
• Severely tested over the past 18 months
• In times of stress can lose their effectiveness
• But certainty of buybacks / DCM has drawbacks
• But no control measures in place is archaic
11
Communication
• Fund manager
• Broker
• Board
• Independent research
• Improved communication due to credit crisis
12
Boards
• Can boards be considered independent?
• F&C Eurotrust / The European Investment Trust
• Directors’ ‘skin in the game’
• Not pushing for change but are looking for boards to be proactive
13
Threats
• Complacency
• New arb / corporate change funds
• UCITS III vehicles
• Low cost ETFs
14
Sector Rejuvenation
• As high profile (for good reasons) as have been for some time
“ I would be astonished if they don’t attract $2bn”
Peter Hargreaves, Financial Times, Monday 22nd February 2010
• Retail Distribution Review
15
Concluding Thoughts
• Sector has survived a very tough 10 years
• Outperformed the more high profile open-ended industry
• Continue to improve communication
• Boards must be proactive
• Great opportunity ahead
16
Regulatory disclosuresThe contents of this document are based upon sources of information believed to be reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This is not an offer or a solicitation to buy or sell any investment referred to in this document. Smith and Williamson Investment Management and its affiliates and or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time may add to or dispose of any such investment. Past performance is not a guide to future performance. The value of your investments may go down as well as up and is not guaranteed. Investment Trusts may be financially geared and splits also provide gearing to their share types through their capital structure (structural gearing). The returns to each class of share are governed by the effects of the entitlements of the other share classes. Shares in splits will high levels of financial gearing in addition to their structural gearing will be exposed to higher risk. Shares further down the order of entitlement are subject to greater gearing and higher risk within the structure Investors should be aware that investments in higher yielding bonds issued by borrowers with lower credit ratings might result in a greater risk of default and have a negative impact on income and capital value. Changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Investors should be aware of the additional risks associated with funds that invest in emerging or developing markets. Tax reliefs referred to are those currently available. The levels and bases of, and relief from, taxation can change and their value depends on the individual circumstances of the investor. This document may include predictions or forward-looking statements that are based on our current opinions, expectations and projections. Smith and Williamson Investment Management undertakes no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.S&W funds are not registered under the Securities Act 1933 of the United States of America ("USA) and the company is not registered under the USA Investment Company Act of 1940. Consequently, the funds may not be offered for sale or sold in the USA, its Territories or possessions or protectorates under its jurisdiction, nor to nationals, citizens or residents in any of those areas.Issued by Smith & Williamson Investment Management Ltd (Authorised and regulated by the Financial Services Authority)Ref: 140/2010
