SECURITIES TRUST OF SCOTLAND: The £220m Scottish fund… scouring the world for stocks
Although you wouldn’t guess from the name, Securities Trust of Scotland is an investment fund that scours the globe for dividend-friendly businesses.
It’s an international approach to investing that the trust has only employed for the past nine years, having previously been focused on the UK stock market.
But the £220 million fund is making a good fist of it. Although it has underperformed its global equity income peer group over the past three years, it has outperformed them over the past year, registering an overall return of more than 12 per cent.
Securities Trust of Scotland is an investment fund that scours the globe for dividend-friendly businesses
Things are looking up. The trust is run by Mark Whitehead, who works for Edinburgh-based Martin Currie, part of global asset manager Legg Mason. He is coming up to his third anniversary at the helm of the fund.
Whitehead’s modus operandi is straightforward. He is not interested in beating specific global indices – he says he is ‘benchmark agnostic’. Nor does he worry about what part of the world he invests in or the market sectors the trust is exposed to.
He is focused purely on hunting down ‘high quality’ companies that are likely to grow their earnings and generate enough cash to pay shareholders a healthy dividend.
The result is a trust comprising just 45 holdings that pays investors a quarterly dividend and has an attractive yield of just over 3.5 per cent.
Among its top ten holdings are companies listed in the UK (Scottish & Southern Energy), the United States (Microsoft), France (healthcare company Sanofi) and Holland – Dutch nutritional specialist Koninklijke DSM.
Whitehead says: ‘DSM epitomises what Securities Trust of Scotland is all about.
‘It’s a strong company that this year is in line to increase its dividends by up to 25 per cent and then keep growing them on the back of strong cash flow.’ He also likes the company because it ticks all the boxes in terms of ‘responsible investing’.
As an investment house, Martin Currie is keen to hold companies in its funds that are environmentally friendly, socially aware and are underpinned by good corporate governance (do not pay executives astronomical sums of money). It is often referred to as ‘environmental, social and governance’ investing.
Whitehead adds: ‘DSM has a clean cow project that is designed to cut methane emissions from cows by at least 25 per cent.
‘To this effect, it has devised a feed additive that it is currently trialling in New Zealand. If it proves a success and passes all the safety checks, it could prove a great revenue generator for DSM and its shareholders.’
With regards to income, the trust has grown its dividend every year since 2011 and Whitehead is determined to keep the record going. So, unlike many rivals, he is happy to top up any income the trust earns on its investments with a small slither of profits it has made on selling holdings.
Last year, for example, of the 6.1 pence per share of dividend that investors received, 0.27 pence came from portfolio profits.
One other attractive feature of the trust is its low charges. The ongoing annual charge is a competitive 0.9 per cent and this will reduce if the assets – minus the £25 million of borrowings – rise substantially above £200 million.
As for the trust’s name, Whitehead says the board has discussed a possible change from time to time, but for the moment it’s staying. ‘We like the Scottish heritage,’ he adds.