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Keystone set to appoint Baillie Gifford as manager in proposed shift to global mandate

Volatility hinders returns at Keystone

Keystone (KIT) announces that it has decided, subject to contract and to shareholder approval, to appoint Baillie Gifford & Co Limited (Baillie Gifford) as its manager using its ‘Positive Change’ investment strategy, a global equity strategy which seeks to provide attractive investment returns while contributing towards a more sustainable and inclusive world.

Structural challenges led to the questioning of the suitability of a UK-focused mandate

In the RNS release, which readers can access in its entirety by clicking here, it is noted that “Earlier this year, KIT’s board appointed Stanhope Consulting to advise on strategic options for the company. Given a number of challenging structural trends, the board started to question whether a UK focused mandate enables investors to capture the most compelling investment opportunities or makes the best use of the company’s investment trust structure. KIT’s board decided to investigate a fundamental change of approach for the company, moving to a global all-cap strategy and adopting a comprehensive commitment to achieving positive impact, and interviewed some of the leading investment management groups in the impact and sustainable investing sector. Baillie Gifford presented the most compelling proposal and, having consulted the company’s major shareholders, the board today announces its intention to appoint Baillie Gifford to implement the ‘Positive Change’ strategy.

Change of Investment Objective and Policy

It is proposed that subject to shareholder approval, the company’s investment objective be changed to incorporate two equally weighted objectives:

  1. “generate an attractive investment return for shareholders over the long term – expressed as the NAV total return exceeding that of the MSCI AC World Index in Sterling terms by at least 2% per annum over rolling five-year periods; and
  2. contribute towards a more sustainable and inclusive world by investing in the equities of companies whose products or services make a positive social or environmental impact.”

It is further proposed that, subject to shareholder approval, the company’s investment policy be changed as described below to create a differentiated strategy, utilising the benefits of the company’s investment trust structure:

  • “an active, long term, global equity strategy;
  • a best ideas portfolio typically invested in 30 to 60 securities;
  • exposures to both listed and unlisted securities:
    • for listed securities, companies with a minimum market capitalisation at the time of investment of $500m, significantly below the $1bn threshold for Baillie Gifford’s ‘Positive Change’ open-ended fund; and
    • for unlisted securities, a target of achieving a 5-10% allocation within three years (with a maximum allocation at the time of investment of 30%); and
  • an ability to deploy gearing (not to exceed 10% of NAV at the time of drawdown).”

Change of name

“The board intends to change the name of the company to Keystone Positive Change Investment Trust Plc, as it believes that shareholders will benefit from association with the ‘Positive Change’ brand, especially in respect of attracting new investors. The change of name is expected to become effective at the time of Baillie Gifford’s appointment and is subject to the new investment objective and policy being approved by shareholders.”


“The company’s current investment objective is to provide shareholders with long-term growth of capital. Due to the composition of the portfolio, shareholders have also received a consistent dividend yield. The proposals, if approved by shareholders, will result in returns from the portfolio being generated predominantly from capital growth. The current level of dividend will therefore not be covered by the future investment income and the company expects to pay a significantly lower level of dividend, after a transition period of approximately 12 months during which the Board intends to utilise the company’s reserves to support the dividend.”

Discount and Premium Management

“The board will continue to review the discount or premium to NAV at which the company’s shares trade and, recognising the context of a new investment objective and policy being implemented, will consider and discuss with major shareholders the need to address any short-term imbalance of demand and supply through a return of capital, or buyback or issuance of shares. Additionally, the company will put in place a discount and premium management policy with a view to limiting any longer-term volatility of shareholders’ share price returns relative to the Company’s NAV.”

Expected Timing

“The proposals are subject to shareholder and regulatory approvals. A circular with further details of the proposals is expected to be published in mid-January 2021, with the implementation of the new investment objective/policy and management arrangements expected following the Company’s AGM to be held on 10 February 2021.”

KIT: Keystone set to appoint Baillie Gifford as manager in proposed shift to global mandate

[As at 10 am this morning, KIT’s shares are up by 13.7%, reflecting Baillie Gifford’s current standing amongst investment trust investors. The proposal would provide listed access to Baillie Gifford’s ‘Positive Change’ team, which in its open-ended structure, has delivered 33.5% per annum, net of fees, compared to the MSCI ACWI Index return of 9.5% per annum, over the period from 3 January 2017 – 30 September 2020. The announcement is another setback to Invesco’s investment trust business. Over the past 12 months, Edinburgh’s management contract was lost to Majedie, Perpetual Income and Growth merged with Murray Income, and it was announced last week that Invesco Income Growth Trust has agreed to merge with Invesco Perpetual Select Trust.]

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