It has been almost six months since Troy Asset Management formally took over the stock picking at Securities Trust of Scotland (Greig Cameron writes).
That change in November marked the end of a busy few months for the board of the trust.
In June Mark Whitehead, the then manager, announced he and his team were leaving Martin Currie, the Edinburgh funds house owned by the US giant Legg Mason, to join the South African wealth manager Sanlam. That was seen as a blow, with Whitehead having helped to revive performance in the prior two years.
In September the STS board announced they were ditching Martin Currie and replacing it with James Harries and Tomasz Boniek from Troy.
The shares lifted 5 per cent on the news although there was a slight sting in the tail of the announcement with the dividend being reset to 5.5p for 2021, compared with 6.41p in 2020.
Harries has described that as a “realistic” level, albeit one which he expects to be able to increase sustainably through the income generated within the portfolio. His main criteria for picking companies are durable competitive advantages, attractive business models and strong management teams.
Analysts at Kepler believe the slightly more conservative strategy Harries follows compared with his predecessor should better insulate the trust against market downturns.
Harries is keen to position STS as a reliable source of income growth which can preserve capital. He believes that can appeal to everyone but is perhaps most likely to attract those in retirement.
As you would expect, Troy re-shaped the portfolio with about 90 per cent of the stocks it inherited being ditched. With only 34 holdings, it is a high conviction grouping and there is an expectation most of those will be held for a long time.
Before the change of manager the top ten included technology groups like Microsoft, Tencent and Samsung Electronics as well as the manufacturers Broadcom and Taiwan Semiconductor.
Since the re-shaping, income-generating consumer goods producers have been in favour, making up more than 40 per cent of the picks overall. The likes of Unilever, Reckitt Benckiser, Pepsico and Diageo are among the biggest stakes the trust has.
The pharmaceutical companies Roche and Novartis are also prominent alongside software and financial services. The cigarette-makers Philip Morris and British American Tobacco are also in the top ten. Their shares took a hit last month amid reports that President Biden’s administration is mulling new rules reducing nicotine and banning menthol products but the stocks have already recovered much of the lost ground.
STS’s performance in the period since Troy took over in November has been steady rather than spectacular. By the end of March its share price had increased by 2.4 per cent and its net asset value had edged up 0.4 per cent.
The Lipper Equity Global Index posted a 7.6 per cent return over the same period.
Investors keeping a particularly close eye on the performance will have been encouraged by the result in March alone. There the trust posted a share price total return of 8.6 per cent compared with 4.8 per cent for its benchmark.
The trust’s shares closed at 197p the evening before Troy took over and had a good run through to February this year, when they fell back to 185p.
They have bounced back since and have been trading a little below the April peak of 209p in recent days.
Advice Hold
Why The philosophy of the new manager should be given time to bed in, but investors will be keen to see some early signs of progress
Victrex
Barely a week goes by without some part of the old ICI empire, such as AstraZeneca or Ineos, in the news. Its legacy of intellectual property remains deeply embedded in what remains of British industry (Robert Lea writes).
One of ICI’s less heralded offspring, Victrex, was in the news yesterday at the top of the FTSE 250 leaderboard as investors were happy to believe in a company that has stabilised its revenues and profits and is paying dividends again.
Victrex is the old Lancashire-based advanced materials division of ICI, bought out by management in the 1990s amid the break up of the old industrial bellwether, and floated in 1995.
It is a one-product company and a one-state manufacturer with all of its output in the UK — though it is building a factory in China — and 98 per cent sent for export. That product is polyether ether ketone, or Peek, one of the world’s most robust and durable plastics.
A bit of Victrex is in Tiger Woods, supporting the golfer’s damaged spine. It is in the braking systems of your German-made cars and Peek components are in the Airbus planes flown by Easyjet or British Airways.
Peek is, in essence, a lightweight and more heat-resistant replacement for metal. As such, it is playing a key role in the development of electric cars as manufacturers seek components to offset all the heat produced by, and the weight of, battery packs.
Victrex’s exposure to the aerospace market sent revenues and profits plunging during the pandemic.
The broker JP Morgan Cazenove, which has a target price of £28 on the stock, said it was happy with the rate of recovery given the depressed state of some markets, adding there is “further upside potential from the ramp-up of new Chinese capacity.”
For the half year to the end of March, revenues were down only marginally at £150 million even though pre-tax profits were 7 per cent lighter at £46 million.
The interim dividend is back, at 13.42p, helping send the shares up 7.3 per cent yesterday, 172p higher at £25.36.
That is now putting Victrex on an earnings multiple of 30 times. That’s rich enough for the time being.
Advice Hold
Why Key product in crucial markets whose shares have caught up
