Troy wins Securities Trust mandate – The board of Securities Trust of Scotland says that, after an extensive review of its investment management arrangements, it has entered into agreements to appoint Troy Asset Management Limited as its new investment manager and PATAC Limited as its alternative investment fund manager (“AIFM”), company secretary and administrator. The core investment objective and policy – to achieve rising income and long-term capital growth through investment in a balanced portfolio constructed from global equities – will not change.
The portfolio will be managed by James Harries, supported by Tomasz Boniek and the wider Troy team. James will seek to achieve rising income and long term capital growth through patient and disciplined capital allocation, seeking out high quality income by investing in exceptional companies that the fund managers believe are attractively valued, with strong management teams, able to sustain growth at high returns on capital, in a high conviction, low turnover portfolio of approximately 30 to 50 stocks.
Troy will waive the management fee payable for a period of twelve months, as well as making a significant ongoing annual contribution to the cost of the company secretarial and administration services to be provided by PATAC.
New discount control mechanism
The Board intend to introduce a discount control mechanism under which the company will aim to ensure, in normal market conditions, that the shares trade consistently close to NAV. The company will seek to buy back shares if the shares are trading at a discount to their underlying NAV and conversely will look to issue shares if the company’s shares are trading at a premium to their underlying NAV.
The new investment manager
Troy, established in 2000, is an independent fund management company specialising in generating consistent returns for investors. Troy aims to preserve and build investors’ wealth by constructing conservative portfolios for the long term.
James Harries has a good track record over 15 years of managing global equity income portfolios having been the lead manager for the global equity income strategy at Newton Investment Management since launch (including the BNY Mellon Global Income Fund). James joined Troy in June 2016 and has managed the £388m Trojan Global Income Fund since its launch in November 2016, generating top quartile performance. Troy also has experience in managing closed-ended funds, having been investment adviser to (now manager of) the £1.3bn Personal Assets Trust and manager to the £253m Troy Income & Growth Trust since 2009.
Lower income generation over the short term
The investment manager intends to derive income only from the natural dividend distributions of the underlying portfolio and does not intend to use option writing as part of their income strategy. The proposed strategy seeks to deliver high quality sustainable income from a diversified portfolio of high conviction stocks, aiming to grow the income generated by the portfolio steadily over time. In the short term, the revised strategy will deliver a lower level of income than is currently received by the company but the Board believes that the long-term growth prospects for income will be enhanced.
The Board has decided that future dividend payments will reflect the revenue earned by the portfolio and as a result the dividend payment for the year to 31 March 2021 will be reset to a more sustainable level of at least 5.5p. The board anticipates steady growth in dividends from the revised level.
Gearing
Securities Trust has borrowing facilities totalling £25m in the form of a £10m revolving credit facility (“RCF”) and a £15m term loan facility. Troy will take a tactical and flexible approach to utilising these facilities. The RCF in particular is designed to be used in a flexible manner and does not need to be fully drawn down at all times. Troy and the board will maintain an active dialogue to ensure that gearing is being efficiently used.
Fees
Troy will receive an annual management fee of 0.65% on net assets up to £750m, 0.55% of net assets between £750m and £1bn and 0.50% above £1 bn.
As a contribution to the costs of the change of investment manager, Troy will waive the management fee payable to it for a period of twelve months from its appointment as investment manager, as well as making a significant ongoing annual contribution to the cost of the company secretarial and administration services to be provided by PATAC.
Following an initial term of three years, the investment management delegation agreement shall be terminable by either party serving six months’ notice.
Expected timing
The Company has provided notice to terminate the appointment of Martin Currie Fund Management Limited as the Company’s AIFM, company secretary and administrator. PATAC’s appointment as AIFM and Troy’s appointment as investment manager is expected to become effective in October 2020.
We think that this looks like good news for Securities Trust shareholders. It broadens Troy’s range of investment trust mandates and should help grow its business. Last night the trust was trading at an 8.5% discount, this should now close. The management fee structure tells you all you need to know about Troy’s ambition for the trust – even the top of the first tier is a long way north of the trust’s current size (around £200m). This move leaves Martin Currie with just one trust – Martin Currie Portfolio. as we reported on Monday, that trust has been performing well recently. It will be interesting to see whether it decides to follow Securities Trust out the door.
STS : Troy wins Securities Trust mandate