- Value stock and gold bets turn sour for SCIN’s management team
- SCIN to be merged with JGGI to form £1.2bn investment trust
- On completion the shareholders will take shares in the enlarged JGGI
Scottish Investment Trust will go into administration after 134 years of business, after a review concluded that its underperforming portfolio should be merged with rival JPMorgan Global Growth & Income to create a £1.2bn fund.
The trust has underperformed globally focused peers in terms of both share price and total return over the past decade, and its board stated that the merger with JGGI was in the best interest of investors.
The Edinburgh-based Scottish maintained an impressive record of 37 consecutive years of dividend growth, but a bias towards unfavorable ‘value’ stocks and large commitments to gold miners have not benefited its capital growth.
The Scottish Investment Trust began life in 1887, but would merge with JGGI after a period of poor performance.
Data from the Association of Investment Company shows that SCIN has recorded share price returns of 8.7 per cent, 1.7 per cent, 19.3 per cent and 124 per cent in one, three, five and 10 years respectively.
This compares to equivalent averages of 29 percent, 101.5 percent, 149.9 percent and 418.6 percent over the same periods.
SCIN sought to generate long-term growth by investing in undervalued international companies, with a conflicting portfolio management team led by Alessdair McKinnon.
The portfolio was revamped in February to take advantage of this approach, on the belief that markets had been underestimating the strength of the post-pandemic recovery and its ability to support cyclical and value-type stocks.
However, the outperformance was never complete. SCIN now sits at a 12.8 percent discount to the NAV of £863.2million.
SCIN’s Top Holdings at the End of September
Lead manager McKinnon was a vocal supporter of the role gold — or shares of gold mining companies — can play in a portfolio to hedge against inflation.
At the end of September, SCIN counted Barrick Gold and Australian gold miner Newcrest Mining among its five largest positions.
The first is down 21.1 percent since the start of 2021 and the latter is flat over the same period, while inflation continues to rise globally.
After receiving a “large number of proposals” to review SCIN’s investment management practices, the trust’s board on Wednesday said it was “particularly impressed by JPMorgan Asset Management’s investment strategy for the benefit of JGGI”.
JGGI hosts a diversified portfolio of approximately 50 to 90 stocks, with the investment manager having a high degree of confidence.
It has outperformed its global equity income investment trust peers in terms of both share price and NAV returns in one, three, five and 10 years.
JGGI was launched in 1887 and was originally called The British Steamship Investment Trust Company and was also known as United British Securities until 1982, when it was renamed Fleming Overseas and from UK Equity The focus was again on global equities.
JPMorgan Chase acquired Fleming in 2000 and the trust was renamed JPMorgan Overseas. It became JP Morgan Global Growth & Income in 2016.
SCIN shareholders will own shares in JGGI upon completion of the transaction.
The board said: ‘JGGI and SCIN were both founded in 1887, and the combination of the two companies will add to the proud history of each.
Bets on gold miners like Barrick Gold have not proved useful to SCIN
It said JGGI will offer shareholders strong investment performance despite a ‘style-agnostic’ approach, deep resource efficiencies, an attractive dividend, scale and low running fees.
Commenting on Decisions Head of Managed Portfolio Services at Killick & Co, Mick Gilligan said: ‘A period of underperformance, partly due to a strong price bias and UK overweight, has led to a strategic review and today’s announcement . In the open world, an OEIC facing similar issues could easily go limp for years.
Shareholders move from a price biased trust with a progressive dividend commitment and the current 3.5 percent yield to a style agnostic (read a mix of value and growth) vehicle that pays out part of its dividend from capital and resets the yield to 4 percent. does. NAV on 30th June every year.
Poor performance in recent years meant the end of SCIN after 134 years
He cautioned that the “big risk” for investors is “the potential for a strong resurgence in value and gold mining stocks”, but added that new managers have “the scope to take advantage of such rotations”.
Nigel Whitman, President of JGGI, said: ‘The Board expects that the grown company will have broad appeal among investors and will be of sufficient size to enter the FTSE 250 in due course of time.
‘The Company will continue to benefit from the strength and depth of the JPMorgan management team and an investment strategy and process that has delivered strong results for shareholders.’