Securities Trust of Scotland reports on ‘eventful year’ with significant gains – Securities Trust of Scotland has announced its results for the year ended 31 March 2021, in which the net asset value total return was 28.5%, a significant increase on the previous year’s 8.3%. The share price total return also rose from 2.7% to 23.7%. During the year, the trust also appointed Troy Asset Management as its new manager and introduced a discount control mechanism. Both changes were introduced in November 2020. As part of the management changes, the company’s dividend was rebased and the board has announced a fourth quarterly dividend of 1.57 pence per share. The total dividend for the year will be 5.7 pence per share.
Extract from the chairman’s statement:
“The year to 31 March 2021 proved to be an eventful one for your company. Stock markets around the globe generally reached a trough after precipitous declines in late March 2020 – just ahead of the start of your company’s financial year. Given the substantial rally that has been a feature for much of the year it is a pleasure to be able to report on high positive returns in asset terms for the company.
The net asset value total return for the twelve months was 28.5%, recouping all of the decline seen in the previous financial year. The share price total return was 23.7%.
Stock markets around the globe in fact generated positive returns for most of the fiscal year quickly moving to discount an anticipated significant recovery in economic activity and corporate profits as restrictions around the world are eased and economic activity resumes a more familiar pattern. This view was prevalent early in the fiscal year and sustained through a second wave of infections late in 2020 by very positive news in November and December on the efficacy of the vaccines under test. Later, evidence of a successful vaccination programme in the US and UK in the first quarter of 2021 sustained the market rally.
In the UK a further boost was received as a deal was agreed to leave the EU which was considered much more positive than a no deal exit.
Throughout this period governments and central banks in the Western world adopted accommodative stances and, particularly in the US, the level of stimulus being placed behind the economic recovery is significant and unprecedented.
Such stimulus comes with a risk and specifically the possibility of higher levels of inflation has recently undermined the bond market in the US which has seen bond yields rise creating additional uncertainty around equity valuations.
Management arrangements
In September 2020 the board informed shareholders of the proposed changes to the investment management, company secretarial, custodian and depositary arrangements for the company. As noted in the Interim Report, these arrangements took effect from 12 November 2020.
I am pleased to confirm that the new arrangements are working well and that the transition has been smooth. This is all the more satisfactory as the reimposition of lockdown measures has placed further obstacles in the way of normal working practices for the board and all its advisers.
I am also pleased to confirm that throughout the fiscal year and to date all the continuity arrangements of all our advisers have worked very well and that no issues have arisen. I would like to thank all involved for the professional approach and successful outcome in respect of the management of the company over the past 15 months.
Troy and the board have agreed that the performance comparator for the company shall be the Lipper Global – Equity Global Income Index which includes all the relevant closed and open-ended funds in the sector. The return is produced independently by Lipper and is a statistically robust benchmark. The relevant measure shall be the median return from this sector. This comparator is effective from Troy’s date of appointment, being 12 November 2020. For information the Index return for the full year to 31 March 2021 was 29.9%. For the earlier part of the fiscal year Martin Currie was measured against the median return of the Morningstar Global Equity Income Index.
Share buybacks and discount management
Alongside the investment management changes made in November 2020 the board also resolved to formalise the discount management arrangements for the company. In addition to its company secretarial role PATAC will also manage the company’s discount control mechanism that your board has introduced.
The successful operation of this policy will aim to ensure that your company’s shares will trade, on a consistent basis, at or very close to their net asset value (‘NAV’) and that liquidity consistently will be available at that value.
In line with this policy, since 12 November 2020 (the date the policy was introduced) to 31 March 2021, 2,203,000 shares have been repurchased at a small discount to NAV and 625,000 shares were reissued at a small premium to NAV.
Outlook
Many stock markets around the globe currently stand at their all time high levels and as described above have made rapid and substantial recoveries from their 2020 lows. The inevitable effect of these rises in a period of challenging economic conditions is that valuations have been stretched and in many sectors now look extreme.
Your manager has a robust and long term approach to asset management and his report sets out in a very clear manner his views of current valuations and how the portfolio has been positioned against that background.
In particular the portfolio consists of companies capable consistently of generating the dividend growth that will sustain growth in your company’s dividends over time.
The recovery in markets from their March 2020 lows has been substantial but one feels that the recovery in economic activity and indeed the progress of this pandemic might be less smooth than the current abundant optimism might suggest. To that end the board has every confidence in the portfolio positioning and the manager’s philosophy and application.
Following significant changes to both the management and portfolio of Securities Trust in the financial year your board anticipates a more settled background in 2021. Our new managers have constructed a high quality portfolio reflecting Troy’s philosophy of delivering an above average long term return with below average levels of volatility. We look forward to enjoying the returns and dividend growth that the successful implementation of the strategy will deliver.
STS : Securities Trust of Scotland reports on ‘eventful year’ with significant gains