Speaker 1: John, ma'am. What was the most Exactually, I'm not even
Speaker 1: going to argue that. I'm going to start with the
Speaker 1: most exciting bit of the budget for me yesterday I
Speaker 1: thought it was the British ISA, or what I'm going
Speaker 1: to call the BISA, because I've been looking for that
Speaker 1: for so long, waiting for it, very keen on it.
Speaker 1: It wasn't exactly how I wanted it. It was still exciting.
Speaker 1: We'll come back to that. Most exciting bit was a
Speaker 1: bunk to the Space center in Shetland. Yes, you know
Speaker 1: we've talked about the space a lot on this podcast
Speaker 1: and the idea that the government are behind the idea
Speaker 1: of Shetland being a center for satellite launches, and I
Speaker 1: thought was really something. It's finiche but kind of exciting.
Speaker 2: I was very surprised that you didn't tweeked on it
Speaker 2: as soon as it came out, But then I realized
Speaker 2: it obviously missed it amid the flood of other exciting
Speaker 2: things that came out in that that section of the project.
Speaker 1: No, I didn't miss it. I was just so excited
Speaker 1: by britt Iss or Bises or Bisas or Brices. I
Speaker 1: don't know. We'll figure out where we going with this one?
Speaker 1: That I kept all my excitement about the space center
Speaker 1: to myself, But then, of course, the day after the
Speaker 1: budget had suddenly realized how exciting it wasn't also realized
Speaker 1: that I'm probably and someone let me know if I'm wrong,
Speaker 1: I'm probably one of the very few, maybe the only
Speaker 1: UK journalists who has visited visited the Saxford Space Center
Speaker 1: on the island of or Is it yell, yell, yell,
Speaker 1: and a lot of ioland to go through on the
Speaker 1: way affects this one thoroughly recommended? Is it? Yeah? I'll
Speaker 1: look it up.
Speaker 2: The thing is with Shetland is yeah, I'm sure a
Speaker 2: lovely place. But I can imagine that most journalists with
Speaker 2: the more luck getting a trip to Australia didn't kind
Speaker 2: of get the expenses to go up to share and
Speaker 2: the days off the John, Yeah.
Speaker 1: The flight cancelations and flights to Shatland are super expensive,
Speaker 1: way more expensive than going to Australia to be right,
Speaker 1: Moving on from that, because most people aren't interested in
Speaker 1: space sessions in Chatland. They are interested is John? And
Speaker 1: what you thought was the most interesting part of the budget.
Speaker 2: You know what if this had been the first budget
Speaker 2: of a five year term or you know, the second budget.
Speaker 2: I would actually be quite exciting now because the Chancellor
Speaker 2: basically turned around and put the idea of getting rid
Speaker 2: of National Insurance and merging it with income tax I
Speaker 2: sualy very funly on the table. You know, he not
Speaker 2: only cut it by another two percentage points, but he
Speaker 2: also said in the long run it would be nice
Speaker 2: to get rid of this problem is of course he
Speaker 2: doesn't have the long run. He's probably got about kind
Speaker 2: of six months and then that is not going to
Speaker 2: be kind of maintained by the next government. I wouldn't
Speaker 2: have thought unless there's a very big surprise. So I
Speaker 2: think from my point view that was the most disappointing element,
Speaker 2: and that this would have been a good budget to
Speaker 2: do about three years ago, and the things That also
Speaker 2: feeds into a problem with the British ISA because they're
Speaker 2: having to consult on it. The consultation doesn't end until June.
Speaker 2: Half of the people who are going to be you know, talking,
Speaker 2: are going to be asked about in this consultation, so
Speaker 2: you know, the investment platforms et cetera. Certainly from the
Speaker 2: points on Twitter, seem to be kind of thinking, well,
Speaker 2: chances are this isn't going to happen before the next election,
Speaker 2: and so it's never going to harm So I think
Speaker 2: that's probably the big disappointment. That's would actually been a
Speaker 2: pretty good budget if they had any room left to run,
Speaker 2: but they don't.
Speaker 1: Yeah, I agree with you. I mean, you know, I've
Speaker 1: been you and I have been calling for the merger
Speaker 1: of national insurance and income tax for a long long time.
Speaker 1: But this is a really interesting way to do it,
Speaker 1: to gradually cut national insurance down, desiri abolishing it. It's
Speaker 1: just making it kind of disappear, and income tax goes
Speaker 1: up at the same time to compensate. And what would
Speaker 1: have been absolutely amazing. You know, I know I bang
Speaker 1: on about this a lot, but here you have riches,
Speaker 1: Unak and Hunt. They haven't got much time left. And
Speaker 1: with that in mind, they haven't got much time left.
Speaker 1: We know they've got nothing to lose. They're very probably
Speaker 1: going to lose. It is miracle to win, right, So
Speaker 1: they have this one off chance, one off chance to
Speaker 1: do a couple of things that would really move the
Speaker 1: dial for the UK, really change things. And one of
Speaker 1: those things would have been actually to go all the
Speaker 1: way with National Insurance yesterday. You got to got that
Speaker 1: through before April if you'd really pushed it or had
Speaker 1: been done and dusted, And what a gift to the
Speaker 1: nation it would have been.
Speaker 2: Yeah, And if they felt like really going for it,
Speaker 2: they could have offset it by in poison capital gains
Speaker 2: tax or in residential property and getting a distamp duty
Speaker 2: at the same time.
Speaker 1: Well, we've been calling for that, you and I again
Speaker 1: for a couple of decades, haven't We never happened, but again.
Speaker 3: Incredibly politically unpopular, but would be really great for the economy,
Speaker 3: for the housing market, for everything, But impossible to do
Speaker 3: unless like this too, you've got nothing left to loose.
Speaker 2: Yeah, I mean, so I think this is the one.
Speaker 2: Well again, it's the other slightly disappointing thing is like,
Speaker 2: this is your one chance to grasp a political natal
Speaker 2: that no one else is going to be able to
Speaker 2: go in the year, and you let's it go, presumably
Speaker 2: because you don't want the back being trobellions and things
Speaker 2: like that that we've come about.
Speaker 1: Yeah, and let's go back to the British I said briefly,
Speaker 1: because one of the things I found interesting about that
Speaker 1: is that you and I agree it's a good idea.
Speaker 1: Lots of people agree it's a good idea. It didn't
Speaker 1: come out in quite the form we would have expected.
Speaker 1: Obviously it's only a consultation, but it doesn't if it
Speaker 1: comes into play as it is at the moment, it
Speaker 1: doesn't take up part of the existing allowance. It's a
Speaker 1: new allowance on top of which means that as most
Speaker 1: people don't use their full allowance anyway. I think it's
Speaker 1: between ten and fifteen percent of people use their full
Speaker 1: allowance depending on the year. In a way, it's more
Speaker 1: simpbolic than anything else in that you know, anyone who's
Speaker 1: going to invest in UKCUI can easily do so within
Speaker 1: the within the twenty thousand, So there aren't that many
Speaker 1: people who are going to use that five thousands who
Speaker 1: are not expecting, you know, tens of billions of pounds
Speaker 1: to suddenly flow into the UK market. And then we
Speaker 1: got lots of people going straight down into the weeds
Speaker 1: of what is a UK company? Why would a company
Speaker 1: with foreign operations count? How we're going to divide this up?
Speaker 1: Doesn't investment trust? It invests a broad count. Does this count?
Speaker 1: Does that count?
Speaker 2: Well?
Speaker 1: I think completely missing the point, which is not about
Speaker 1: specific companies and where their operations are. It's about the popularity,
Speaker 1: liquidity and valuations inside the UK market. So to me,
Speaker 1: even the symbolism of it is enough, a symbolism of
Speaker 1: showing that the government is aware of this problem, prepared
Speaker 1: to put in place incentives to move into the UK market.
Speaker 1: And it's about the efficiency and efficacy of the UK
Speaker 1: market as a whole, not about wibbling away about whether
Speaker 1: you know one company counts as a UK company or
Speaker 1: another company doesn't count as the UK company. It's about
Speaker 1: our capital markets. Am I missing something? No?
Speaker 2: I mean, that's exactly right. And the things a lot
Speaker 2: of people wibbling about that are the same people who
Speaker 2: are wibbling about ARM not listing in the UK and
Speaker 2: kind of like, well, Arms a UK company but was
Speaker 2: not listed here and we were all moaning about that
Speaker 2: when it happened. Now this is about addressing that it's
Speaker 2: not actually a book, and of boosting British business as
Speaker 2: in businesses that are in Britain. And also but the
Speaker 2: other thing I thought was important is that idea of
Speaker 2: getting DC pension schemes to explicitly say where they are.
Speaker 2: The auto enrollment schemes basically say explicitly how much of
Speaker 2: their portfolio is in UK equities. So it's that whole
Speaker 2: nudge towards a market that is clearly being neglected for
Speaker 2: reasons that are not related to the actual companies that
Speaker 2: are listed on it. And that's what I think is
Speaker 2: really interesting is that today's guest kind of delves into
Speaker 2: something very very similar because you talk about the investment
Speaker 2: trust market and a lot of the issues surrounded investment
Speaker 2: trusts and have come desk going so purely to do
Speaker 2: with market structure and nothing to do with the underlying
Speaker 2: companies and the UK market as a wholeways basically get
Speaker 2: the same problem. So addressing that is what we're doing.
Speaker 2: And yeah, I mean they should have got read the
Speaker 2: stamp duty when shares. That would have been good that
Speaker 2: with the course of money, So at least this is
Speaker 2: a start.
Speaker 1: Yeah, there is a hint and actually I've written about
Speaker 1: this week. There is a hint in here of the
Speaker 1: return of financial oppression. Though isn't there a hint of
Speaker 1: the direction of capital and directions that the state wants
Speaker 1: it to go in? And I was looking back to
Speaker 1: the end, you know, or the last gasps of financial
Speaker 1: oppression last time around, financial oppression, by the way being
Speaker 1: just a it'sually complicated. Look it up, look it up.
Speaker 1: We haven't got time to run through financial oppression. Here
Speaker 1: lots of different ways to help governments run down their
Speaker 1: debt without explicitly taking extra money from people to do so.
Speaker 1: But looking at the last gasp of financial oppression in
Speaker 1: the nineteen seventies, in late nineteen seventy nine, when capital
Speaker 1: controls were removed, and at that point the point which
Speaker 1: we went allowed to send money abroad or investor broad.
Speaker 1: At that point, UK penton funds have pretty much all
Speaker 1: their money in UK equities. Right the day that capital
Speaker 1: controls were removed, the FT index fell by about three percent,
Speaker 1: and it did so because everyone immediately believed that people
Speaker 1: would stop sending their money in broad investing in foreign markets.
Speaker 1: And do you know what they expected absolute tiptop max.
Speaker 1: They expected that UK pension funds would allocate about ten
Speaker 1: percent of their equity allocations abroad. In fact it ended
Speaker 1: up being closer to one hundred percent. That's fascinating. So
Speaker 1: this is a little pullback, isn't that. It's a little
Speaker 1: pullback saying you know, come on to take here. Let's
Speaker 1: go back a little. Let's go back a little, son,
Speaker 1: I sense the beginning of a pullback towards the repression
Speaker 1: of the post war period.
Speaker 2: Well, on that point, where I thought was interesting is
Speaker 2: that as part of the consultation these sort of noddy
Speaker 2: to the idea or should guilts be allowed to be
Speaker 2: held as part of your five grand UK only allowance?
Speaker 2: I thought that's quite interesting. You know, this nigsty Ward
Speaker 2: is getting retail investors buying more government io use basically
Speaker 2: and having a specific allowance that allows them to do so.
Speaker 2: So effectively, you're kind of saying it's a cash iSER,
Speaker 2: but a cash isser that can hold guilts or uk
Speaker 2: O westate the equities.
Speaker 1: And do you know what I think, John, I think
Speaker 1: it's quite likely that over time it wouldn't be you
Speaker 1: can hold gilts if you want, it'll be, oh, do
Speaker 1: you know what, you have to hold guilts? You have
Speaker 1: to hold guilts. And that's classic financial oppression, directing people's
Speaker 1: capital such that they are forced obliged to help finance
Speaker 1: the government whether they want to or not. And that's
Speaker 1: the hint that I think we saw in this budget,
Speaker 1: and that's one of the reasons that I found it searched.
Speaker 1: Welcome to Merin Talks Money, the podcast in which people
Speaker 1: who know the markets explain the markets. I'm mere and
Speaker 1: sumset web. This week it's all about investment trusts for
Speaker 1: those who might not know. And investment trust is that
Speaker 1: it is simplest just to company the business of which
Speaker 1: is to buy other companies. So it's a quoted company,
Speaker 1: it's listed on the Stock Exchange and in the main
Speaker 1: you will only find the structure in the UK. So
Speaker 1: to walk us through everything there is to know about
Speaker 1: investment trust and to tell us why we should be
Speaker 1: buying them right now, I spoke with Nick greenwot he
Speaker 1: co manages the Migo Opportunities Trusted as a Value Partners
Speaker 1: and before that he was at Premier My investor. Nick, Hi,
Speaker 1: thank you so much for joining us today.
Speaker 4: It's a pleasure listen.
Speaker 1: I want to start Nick by talking about the structure
Speaker 1: of investment trust. You and I are both great fans
Speaker 1: of investment trusts and both think of them as being
Speaker 1: one of the greatest of investment vehicles for the retail
Speaker 1: investor in particular, and I wondered if we could just
Speaker 1: start with you explaining what exactly it is. We're talking about,
Speaker 1: what is an investment trust as opposed to any other
Speaker 1: kind of collective investment vehicle, and what makes it, to
Speaker 1: your mind superior in some ways to other types of
Speaker 1: investment vehicle.
Speaker 4: Yeah, investment trusts are peculiarly British thing. They don't really
Speaker 4: exist elsewhere in the world. There are pockets in various places,
Speaker 4: but the most collectives are open ended funds. So you
Speaker 4: put your money in, you take money out on a
Speaker 4: daily basis, and if you redeem you want your money back.
Speaker 4: The fund manager has to sell stuff in the portfolio
Speaker 4: to hand it back to you, which means that you
Speaker 4: have to run any really works if you have quite
Speaker 4: a liquid portfolio. Where an investment trust is structured a
Speaker 4: bit like an industrial company, a fixed number of shares
Speaker 4: in the market, and you want to buy or sell,
Speaker 4: you've got to go to the stock market to get
Speaker 4: an order, just as if you were buying or selling
Speaker 4: Marks and Spencer, and it's a bit fiddly, But what
Speaker 4: that means is the fund manager doesn't have to buy
Speaker 4: or sell from the underlying portfolio, which means they can
Speaker 4: put a lot more conviction into the portfolio and really
Speaker 4: focus on their strongest views and not worry too much
Speaker 4: about having an investment that they couldn't sell instantly. I
Speaker 4: run both, and the differences are really that in some
Speaker 4: of some really interesting stocks that aren't particularly liquid, I
Speaker 4: might have four percent of the portfolio in it. In
Speaker 4: the open ended fund, where I've always got to know
Speaker 4: where a few million is going to come from by
Speaker 4: twelve o'clock the following day, that might only be a
Speaker 4: two percent position because the liquidity isn't there to be
Speaker 4: certain that you can sell there's a run on your fund.
Speaker 4: And therefore what you find is investment trusts with the
Speaker 4: same managers tend to outperform their equivalent TOIG.
Speaker 1: Okay, so what you effectively have in most cases not all,
Speaker 1: of course, because will come later maybe to buybacks in
Speaker 1: discounts and redemptions and windings up, etc. But in essence,
Speaker 1: what you've got is a permanent portfolio.
Speaker 4: Yeah, permanent capital is one way of describing it.
Speaker 1: Which is very different to having a portfolio that constantly
Speaker 1: fluctuates in size. And that's the key difference.
Speaker 4: Yeah, and you don't have to obsess about the liquidity, which
Speaker 4: is important. It gives you more stocks and more companies
Speaker 4: and more investments to choose from than the rivals who
Speaker 4: are running open ended funds.
Speaker 1: And the other differences are that an investment trust will
Speaker 1: have or should have a fairy engaged board of directors
Speaker 1: whose job it is to look out for the shareholder,
Speaker 1: and that's something that's quite important. And of course an
Speaker 1: investment trust can borrow money to try and improve returns overall,
Speaker 1: and that's something that most open ended funds can't.
Speaker 4: Do indeed, all right.
Speaker 1: And the other thing that's very important when you're talking
Speaker 1: about investment trust is the idea of discounts and premiums.
Speaker 1: So because an investment trust is effectively a listed company,
Speaker 1: the business of which is to invest in other assets,
Speaker 1: be they shares in other companies or be they a
Speaker 1: stake in a renewable energy project or something like that,
Speaker 1: it is possible for the shares and investment trust to
Speaker 1: trade add a discount to the nests aut of value
Speaker 1: or at a premium to the ness aut of value.
Speaker 4: Right.
Speaker 1: So that's a very important part of investment trust investing
Speaker 1: is to understand how that works. Is that fair?
Speaker 4: Yeah, it's fair because as when you go into the
Speaker 4: stock market and the price you pay is not decided
Speaker 4: by the value of the underlying port Foilio. Well, there
Speaker 4: are obviously influences that the price where the balance of
Speaker 4: buyers and sellers comes and when you get periods of
Speaker 4: oversupply and lack of interest, that the share price that
Speaker 4: you can pay can be a substantial discount to the
Speaker 4: value of the underlying portfolio. And we'll touch on it later,
Speaker 4: I'm sure, but that's the number of what we're looking for.
Speaker 4: We're looking for things that are just effectively trading at
Speaker 4: the wrong price just because nobody cares about them at
Speaker 4: the moment.
Speaker 1: Yeah, And this is where we come back to what
Speaker 1: we were talking about earlier. Whereas in the main and investment
Speaker 1: trust has a sort of permanent portfolio in the cash
Speaker 1: under management doesn't change all the time with people coming
Speaker 1: in out. But if there's a very big discount, the
Speaker 1: directors may decide to buy back shares, which of course
Speaker 1: shrinks the size of the trust, or if it's trading
Speaker 1: at a premium, they may decide to issue more shairs,
Speaker 1: which enhances the size of the trust. So it's not
Speaker 1: necessarily always a portfolio that isn't changing, but it's the
Speaker 1: discretion of the directors.
Speaker 4: But the interesting point on buybacks is, unlike with an
Speaker 4: open ended fund where you just get an email at
Speaker 4: half past eleven saying please give me x million by
Speaker 4: two twelve o'clock, if we find on the investment trust
Speaker 4: there's no supply that if not dealt with it is
Speaker 4: going to lead to a discount, then that then the
Speaker 4: actual trigger is in our hands and therefore we can
Speaker 4: make certain that we've got the money in the portfolio
Speaker 4: to do a buyback before we actually push the button.
Speaker 4: And where so we have control where in the OIK
Speaker 4: it's the unit holder that has controlled of the timing.
Speaker 1: Right. Okay, so I think we've established what an investment
Speaker 1: trust is. Now we've established how they work. Let's talk
Speaker 1: about where we are in the UK investment trust market
Speaker 1: at the moment. And as you say, the UK investment
Speaker 1: trust market pretty much being the only investment trust market
Speaker 1: at the moment, it's not looking that great. Is We've
Speaker 1: talked about how these wonderful attributes that investment trusts have
Speaker 1: and we've said that over the very long term or
Speaker 1: the medium term, investment trusts have historically outperformed. Are the
Speaker 1: types of collective vehicle in the UK, but right now
Speaker 1: it's not looking good. Now.
Speaker 4: The trust sector has suffered a near death experience that bad.
Speaker 1: I was expecting you to say it was that bad.
Speaker 4: In October, it did feel that this perfect storm of
Speaker 4: events could be enough, particularly the cost disclosure, but we
Speaker 4: had a lot of things all happening at once, and
Speaker 4: it's still not bounced back at The average discount is
Speaker 4: around seventeen eighteen percent, which is pretty well the widest
Speaker 4: ever apart from briefly during the credit crunch. It's definitely
Speaker 4: our touching widest discount of all time in normal conditions.
Speaker 4: And what's caused all that We've had an absolute perfect
Speaker 4: storm and there was a new issue boom in ste
Speaker 4: of twenty twenty twenty twenty one of high yielding trusts
Speaker 4: because as you remember, deposit rates were effectively zero for
Speaker 4: a long period of time and a number of trust
Speaker 4: particularly things like renewables or shipping or whatever, were structured
Speaker 4: with quite a high yield and a way of advisors
Speaker 4: getting their customers at a decent return demand for those
Speaker 4: and there was an enormous amount of issuance and supply,
Speaker 4: but recently with guilts at one point getting up to
Speaker 4: five point four percent. Why would you want to own
Speaker 4: an infrastructure fund yielding six say, when you could get
Speaker 4: in theory risk three, a short dated guilt yielding five
Speaker 4: point four which killed demand for a whole raft of
Speaker 4: investment trust and ken as I said before, if you've
Speaker 4: got limited demand and plenty of supply, share prices will
Speaker 4: just keep falling till the balance of buyers and sellers
Speaker 4: gets into equilibrium. So that was one of the factors too.
Speaker 4: Traditionally the natural buyer of investment trust were the old
Speaker 4: private client stockbrokers, and in the last decade or so
Speaker 4: they've all been merged into these vast wealth management chains
Speaker 4: and we've seen Vestic and rack bones being put together.
Speaker 4: That's going to be one hundred billion pound pot, and
Speaker 4: you're seeing quite a lot of standardization of portfolios simply
Speaker 4: because of the size. The direction of travel is standardization.
Speaker 4: You've got one hundred billion pound pot there. If you
Speaker 4: say that you need one percent in an investment to
Speaker 4: move the needle to make it worthwhile the manager actually
Speaker 4: taking a position, you need a billion pounds worth of
Speaker 4: stock and that would be difficult to achieve even in
Speaker 4: Scottish mortgage, one of the largest investment trusts that natural
Speaker 4: buyer will steadily disappear over the years, and that's an
Speaker 4: ongoing challenge now, particularly more for the larger trust rather
Speaker 4: than the smaller ones, because the smaller ones have been
Speaker 4: off the buy list for some time. Just to running
Speaker 4: down the list. We've had a bizarre situation with the
Speaker 4: cost disclosure and the methodologies, which mean that you end
Speaker 4: up with vastly higher figures theoretical figures for an investment
Speaker 4: trusting you do. For annoy there was at one point,
Speaker 4: as I said before, I run both that the EUT version,
Speaker 4: same managers, same sixty five basis point annual fee. But
Speaker 4: at one point the open ended fund had an OCF
Speaker 4: or the cost disclosure of eighty nine basis points and
Speaker 4: the investment trust three hundred and nine basis points for
Speaker 4: us virtually the same portfolio, and that right the way
Speaker 4: across means that for a number of trusts that come
Speaker 4: up with very high figures and very strange results on
Speaker 4: the methodology become almost unbiable for some investors who have
Speaker 4: to add those costs to their product costs and disclose
Speaker 4: it to their clients and very often don't get the
Speaker 4: opportunity to actually explain to their clients what's going on.
Speaker 1: Can I stop you there, sorry and ask you to
Speaker 1: explain what that methodology is? What are we talking about here?
Speaker 1: How can the same portfolio be eighty nine basis points
Speaker 1: and three hundred and nine basis points, so under one
Speaker 1: percent and over three percent at the same time.
Speaker 4: Yeah, there are some reasons for that. You've got the
Speaker 4: cost of the board. You're a listed company on the
Speaker 4: stock market, and they are to a certain extent, they
Speaker 4: are generally more expensive. You looked at our funder genuine
Speaker 4: figure might be one hundred and forty, so still a
Speaker 4: lot higher than the EU version, But you get all
Speaker 4: the benefits of being an investment trust and it's a
Speaker 4: better portfolio, etc. But probably the big change is that
Speaker 4: you now have to add all the costs of anything
Speaker 4: you invest in on top of your own costs. So
Speaker 4: that's almost like if you invested in Glaxo, reflecting all
Speaker 4: the costs of running Glaxo, but none of the income,
Speaker 4: and you get some And because of the investment trust
Speaker 4: sectors specializes in some specialist asset classes, for example second
Speaker 4: hand life policies. For example, there the methodology means that
Speaker 4: you have to the premiums, which is part of the
Speaker 4: investment function, get added to the costs. So it might
Speaker 4: work on a long only equity fund, but once you
Speaker 4: get into the world of the renewable energy, or shipping
Speaker 4: lines or second hand life policies, the equity is a
Speaker 4: big example. These costs are more kin to businesses and
Speaker 4: it gives a very strange figure which is misleading. To
Speaker 4: be honest to investors who are looking to use these funds.
Speaker 1: Just be absolutely clear, Nick, What you mean is that,
Speaker 1: let's say, for example, the fees on one investment trust
Speaker 1: would be one percent, and then the fees of investing
Speaker 1: in other things would be two or three percent, whatever
Speaker 1: it is, and you have to add them all together,
Speaker 1: so you've got effectively a double fee, whereas on an
Speaker 1: open ended fund you don't have to do that.
Speaker 4: You don't although you're investing in the same stuff.
Speaker 1: Yeah, but we are expecting this to be resolved right
Speaker 1: very much under conversation.
Speaker 4: Yeah, Director of Travel has changed for the better. Yeah,
Speaker 4: there's I think that the chance to exchequer in the
Speaker 4: notes to his autumn statement reflected or acknowledged the problem.
Speaker 4: It's just the bureaucracy to try and get this sorted,
Speaker 4: and you could have it carrying on like this for
Speaker 4: another year or so. There is the risk. Certainly, when
Speaker 4: I was talking about the near death experience before this
Speaker 4: change of direction, it did feel like the regulator is
Speaker 4: going to accidentally kill the investment trust movement. Something that
Speaker 4: survived two World wars could just get accidentally shot. Because
Speaker 4: I don't think any regulator has set out to kill
Speaker 4: the investment trust sector. It's just it comes back the
Speaker 4: trust sector because it's so different. And they said it's
Speaker 4: purely British thing that every time you try and standardize something,
Speaker 4: you just get very strange results. And the investment trusts
Speaker 4: don't cope very well with standardization because they are different.
Speaker 1: Can I just take you back then to the second
Speaker 1: problem that you mentioned, which is the size issue, with
Speaker 1: the wealth managers getting bigger and bigger and therefore not
Speaker 1: being able to invest in smaller trusts anymore because they
Speaker 1: can't get a large enough percent into their portfolio for
Speaker 1: it to make sense. What sort of size then makes
Speaker 1: a trust viable?
Speaker 4: Yeah, they used to say one hundred and two hundred
Speaker 4: and four hundred, but the figure keeps going higher. Is
Speaker 4: these portfolios become ever larger but if you think about it,
Speaker 4: even a billion pound trust, I don't think it may
Speaker 4: be fine today, But the area that's most vulnerable is
Speaker 4: probably around the five hundred to the billion pound mark,
Speaker 4: which until recently would have been large enough for the
Speaker 4: wealth managers to use. But as they merge and they
Speaker 4: get ever bigger, a billion pounds is relatively small. As
Speaker 4: I said, the Investigo Raftbats combination will be one hundred billion.
Speaker 4: We're not there yet, but that's the direction of travel.
Speaker 4: They might need a billion pound ticket each time they
Speaker 4: invest in something. If you can't buy into a billion
Speaker 4: pound investment trust, you need to buy one hundred percent
Speaker 4: of all shares an issue. So I think that the
Speaker 4: problem is actually the medium and larger size trust. At
Speaker 4: the moment, the trust like the one I run have
Speaker 4: been off their buy lists for seven or eight years,
Speaker 4: and therefore it's less of an issue. So it's not
Speaker 4: small trust that they're struggling. Because the small trusts that
Speaker 4: exist they've found a reason for existing. They've they found
Speaker 4: an audience to play to, and I think probably size
Speaker 4: isn't simply if you've got a one hundred million pound
Speaker 4: investment trust owned by high networth individuals wealth managers are
Speaker 4: splintered away from the chains and retail investors that can
Speaker 4: live quite healthily. But if you're a two hundred and
Speaker 4: fifty million pound trust purely owned by the wealth management chains,
Speaker 4: you've got a problem. So the one hundred million pound
Speaker 4: trust in that example is healthy. The two hundred fift
Speaker 4: million pound trust in that situation is doomed.
Speaker 1: So we've talked about the cost of closures, to size, etcetera.
Speaker 1: You were about to offer me yet another problem, I think,
Speaker 1: what is it?
Speaker 4: Yeah, Certainly, when we were well, we were touring the
Speaker 4: North thirty recently, a lot of people were making the
Speaker 4: point that a lot of the advisors are not coming
Speaker 4: anywhere near their benchmarks because you've got these six or
Speaker 4: seven of the Magnificent seven I think they called them,
Speaker 4: the big tech companies in the States, dominating the gains
Speaker 4: in the stock market. And therefore some of these investment
Speaker 4: trusts that have fallen in too big discounts look particularly bad,
Speaker 4: and the knee jerk reaction has been to sell them
Speaker 4: to get them off the register. So the whole event
Speaker 4: of the perfect store was then triggered. Another type of seller.
Speaker 4: It's what I used to call the killing the dog
Speaker 4: trade in the back in the distant past, in the
Speaker 4: early eighties, I was a private clans stockbroker, and if
Speaker 4: you had a dog in the portfolio and say fifteen stocks,
Speaker 4: and your clant's coming in, you know that stock is
Speaker 4: still in the portfolio fifty five minutes of your one hour,
Speaker 4: the cloud is going to be talking about that stock.
Speaker 4: So you kill the dog before the meeting. It's a
Speaker 4: term from many years ago, and I think that's what
Speaker 4: we're seeing in trust as well, in that if you've
Speaker 4: got a trust you've paid a pound for and it's
Speaker 4: trading at sixty p because it's trading at a big discount,
Speaker 4: you really want to sell.
Speaker 1: Yeah, absolutely, get rid of it so you don't have
Speaker 1: to explain.
Speaker 4: It, right, exactly, That's exactly it.
Speaker 1: Brilliant or not brilliant, that's how you look at it.
Speaker 1: The plus side here, right, assuming have you got to
Speaker 1: the end of the litany of problems? Nick?
Speaker 4: Yep, that's enough?
Speaker 1: Yeah, okay, good. That is the deprising bit of this
Speaker 1: conversation over because the next bit is about I hope,
Speaker 1: and I hope you're not going to correct me on this.
Speaker 1: I hope. The next bit is about these really are
Speaker 1: still great investment vehicles. All these problems exist. We've talked
Speaker 1: about how one of them may be resolved, but they exist.
Speaker 1: It's fair. I'm not going to deny that, but that
Speaker 1: might provide some absolutely fantastic opportunities for the value orientated
Speaker 1: retail investor who would like to look at what they
Speaker 1: can buy out of what been great discount to it
Speaker 1: net asset value.
Speaker 4: Yes, discounts are pretty well as wide as they've ever been.
Speaker 4: But whenever we've had discounts this wide with normally in
Speaker 4: the middle of a financial crisis, which clearly is not
Speaker 4: happening at the moment. There are for all sorts of
Speaker 4: reasons the trust trade on why discounts at the moment,
Speaker 4: as we've discussed, But basically the point is the market,
Speaker 4: for internal reasons, can't value assets properly, then the real
Speaker 4: world will come and take them. So we've got trust
Speaker 4: sitting on a fifty discount. Maybe the real world comes
Speaker 4: in and pays twenty five discount to take the decent
Speaker 4: assets and leave. So, yeah, the odds are stacked in
Speaker 4: your favor if you buy into the trust sector at
Speaker 4: the moment.
Speaker 1: Yeah, and possibly something of an opportunity for retail investors.
Speaker 1: If professional investors can't buy, particularly the smaller trusts and size,
Speaker 1: they're leaving them there. For us, a.
Speaker 4: Lot of professional investors have been frightened off by the sector.
Speaker 4: They've taken some losses on some things they didn't expect
Speaker 4: to and they've lost their confidence, which is part of
Speaker 4: the reason why discounts are so wide at the moment.
Speaker 1: Now. One of the other things I noticed when I
Speaker 1: look at your portfolio is that there's pretty much no
Speaker 1: home bias there. Everyone often talks about it. You will
Speaker 1: have a natural home bias when it comes to investing,
Speaker 1: You absolutely do not. Do you notice, for example, there's
Speaker 1: even a trust investing in Georgia.
Speaker 4: Yes, we've probably got slightly more in Georgia than we
Speaker 4: have in the UK. Having said that, I think the
Speaker 4: institutional benchmarks in the UK is about four and we're about seven. Actually,
Speaker 4: you could say we've got nearly twice the exposure of
Speaker 4: the UK than some of the benchmarks. But it's all
Speaker 4: focused on very small companies, and what's happening in microcaps
Speaker 4: is exactly what's happening investment trusts. For slightly different reasons.
Speaker 4: The institutional investors become so large that they really need
Speaker 4: to be investing a few hundred million at a time.
Speaker 4: And therefore, if you invest in a company with a
Speaker 4: market value of fifteen million or one hundred million, even
Speaker 4: thought doubles of travels, you just don't move the needle.
Speaker 4: So there's no point in them doing it. So these
Speaker 4: listed companies trade ever cheaper, but they're real companies in
Speaker 4: the real world, generating real cash, real profits, and there's
Speaker 4: a great opportunity for retail investors, and it's one that
Speaker 4: we're taking in the in the fund. Basically, it's like
Speaker 4: a Russian doal of discounts than the microcaps because the
Speaker 4: UK trades are a big discount to the rest of
Speaker 4: the world. Small caps trade on a discount to large caps,
Speaker 4: microcaps even bigger discount, And every now and again you
Speaker 4: can actually buy a perfectly good portfolio of microcaps in
Speaker 4: it within an investment trust, trading on a twenty percent discount. So,
Speaker 4: as I said, it's the sort of Russian doll type situation.
Speaker 4: Institutions aren't coming back to smaller there's a structural problem,
Speaker 4: but the real world, the individual companies will get taken out,
Speaker 4: will find a new way of ownership at a reasonable
Speaker 4: premium to where they're languishing in the stock market at
Speaker 4: the moment.
Speaker 1: Nick, let's just move around the world a little bit.
Speaker 1: You've got you're holding two I think you're holding two
Speaker 1: investment trusts with investments in India. Right.
Speaker 4: We're optimistic on India in the longer term. It's not
Speaker 4: massive position. We've certainly seen small and medium sized companies
Speaker 4: perform extremely well. India is another very big beneficient of
Speaker 4: the change in the world order there. We equities are
Speaker 4: quite expensive at the moment, but times you can be
Speaker 4: too clever and just they're too expensive this week, and
Speaker 4: then sell and they drift down ten percent. Then then
Speaker 4: define the level and start going up again, and you
Speaker 4: never get around to jumping back on board. So more
Speaker 4: of a long term macro view there. There's not really
Speaker 4: that much speciation in Indie capital growth welthough there is
Speaker 4: a little bit in JP Morgan India because it has
Speaker 4: investment windows every five years and if it's underperformed over
Speaker 4: that period of time then they have to give twenty
Speaker 4: five percent of the money back at nav and it
Speaker 4: has at times traded on a twenty discount in the
Speaker 4: not too recent past. There was a change of manager
Speaker 4: a year or two ago and it's a stronger trust
Speaker 4: than it's been in the past. But when they took over,
Speaker 4: they were a long way away behind in the current
Speaker 4: performance window. Although they've made up quite a bit of ground,
Speaker 4: but they don't make up all the ground. Then they've
Speaker 4: got to give twenty five percent of the money back
Speaker 4: at par and yeah, that's obviously where we brought in
Speaker 4: a sort of around eighty pence in the pound getting
Speaker 4: a twenty percent movement on that. The pork failio is
Speaker 4: quite a big percentage for no movement in the underlying
Speaker 4: portk foilio. There is an element and that's more of
Speaker 4: a large cap exposure in what you find with investment
Speaker 4: trusts is that when there's a change of manager where
Speaker 4: or a trust that's underperformed for a number of years,
Speaker 4: such as Japie Morgan India, they carry on training on
Speaker 4: the track record of the vehicle rather than who's running
Speaker 4: it now and maybe takes a year or two to
Speaker 4: catch up with the current reality. So you do get
Speaker 4: that arbor charge free perception reality with things like Japie
Speaker 4: Morgan India.
Speaker 1: Okay, but let's look at where Some of the really
Speaker 1: big discounts are which is in the private equity sector
Speaker 1: the trust a hold private companies Chrystalis for example, or
Speaker 1: billy Gifford Trust. You have fairly big holdings in those.
Speaker 1: Talk about that a bit.
Speaker 4: Yeah, Our biggest is is Oakley. We've also got nb
Speaker 4: private Equity in the.
Speaker 1: Private equity area and Hallie and the Bailly Gifford one.
Speaker 4: Yes, the area has been particularly hard by this cost
Speaker 4: disclosure because private equity is quite quite an expensive mandate. Now,
Speaker 4: if this issue with the cost disclosures and the methodologies
Speaker 4: gets resolved, private equity is going to be a big
Speaker 4: beneficiary because some of these trusts get up to declaring
Speaker 4: those of seven hundred bases points and that means that
Speaker 4: they're uninvestable to maybe models being run by IFA and
Speaker 4: wealth managers, because you've got to declare that figure on
Speaker 4: top of your own costs, and it just looks all
Speaker 4: your clant seedes is the seven percent from the private
Speaker 4: equity done plus the one percent perhaps that the wealth
Speaker 4: manager is charging. They think they're being charged eight percent,
Speaker 4: and therefore it's impossible for a number of investors to
Speaker 4: actually own this sector.
Speaker 1: So Nick, you think that The biggest problem with the
Speaker 1: private equity trusts is not so much allows the investments
Speaker 1: or investments that are valued incorrectly, but a cost structure
Speaker 1: that makes them uninvestable for wealth managers.
Speaker 4: Yeah, that's that's the main problem. There were in the
Speaker 4: past that those have also been problems in that people
Speaker 4: didn't trust the valuations. But we've gone through a couple
Speaker 4: of years, big four accountants will have crawled all over
Speaker 4: those valuations and signed them off and they will be
Speaker 4: parent at the moment, so I think that issue has passed.
Speaker 4: And also you have more visibility on where the winners
Speaker 4: and losers are a couple of years on from the
Speaker 4: big sell off in that area. So that was those
Speaker 4: were concerns, but I think you don't need to worry
Speaker 4: about those now. The big concern is supplied demand in
Speaker 4: the market. And let's say when these rules came in
Speaker 4: that fifteen percent of some of these private equity trusts
Speaker 4: were owned by people who would have to clear or
Speaker 4: add these underlying cost to their own product details. They
Speaker 4: really need to get out, and probably half of that's
Speaker 4: already been sold. But it's that selling pressure that's triggering
Speaker 4: the very, very wide discounts. Of sort of twenty five
Speaker 4: to thirty maybe forty percent in some areas. As Again,
Speaker 4: a lot of this just boils down.
Speaker 1: Life out of all that you hold, quite a few
Speaker 1: of them. Out of the ones that you hold, which
Speaker 1: is your favorite?
Speaker 4: I think Oakley Capital is the is the favorite long term.
Speaker 4: Just very good at what they do and have created
Speaker 4: some amazing businesses and that's that's been a great one
Speaker 4: for us. Recent ones that have gone in tend to
Speaker 4: be the more early stage type unlisted that say, Shahllian
Speaker 4: Chrysalis and Seraphim Space.
Speaker 1: Tell us a bit about Seraphim Space that's popped up
Speaker 1: on this podcast before, and we've had a couple of
Speaker 1: podcast where we've talked about nothing but space. What's the
Speaker 1: interesting holdings inside Saraphim. Did it get a little pop
Speaker 1: from that landing on the moon recently, etc.
Speaker 4: No, it sounds quite outlandish at first, but when you
Speaker 4: actually start looking at some of the business models, they
Speaker 4: are becoming more mature. It's amazing how much you know,
Speaker 4: how much is done in the space and just things
Speaker 4: like mapping and insurance claims, for example. You can check
Speaker 4: with everything's been photographed all the time, and you can
Speaker 4: check out insurance claims by just looking at images from space.
Speaker 4: So it's much more mature than pact. You thinking we're
Speaker 4: much closer to profitability. And it just got to a
Speaker 4: point where it was trading on about sixty five discoun
Speaker 4: I think we paid thirty three pence for our holding,
Speaker 4: and they bounced quite sharply in there. So it was
Speaker 4: just really a case of when the market was really
Speaker 4: nervous in October, there was almost no price for these
Speaker 4: that people were completely averse to risk and perceive this
Speaker 4: as risky, and therefore the shares spiked down to a
Speaker 4: very low level and literally, I think again sixty sixty
Speaker 4: five discounts. We used to think twenty percent discount was
Speaker 4: pretty wide. The extremes of discounts we've seen with the
Speaker 4: last year or two, it is something I've not seen before,
Speaker 4: and I've been doing investment trusts since since the late eighties.
Speaker 4: Sixty five you wouldn't even dream of. So when you think,
Speaker 4: when you can see that, the portfoilio is quite interesting
Speaker 4: as well, and it does give you the special situation
Speaker 4: to exploit.
Speaker 1: Yeah's certainly fun. There were a couple two more that
Speaker 1: I wanted to ask you about. Particularly because I find
Speaker 1: them rather interesting. The first is the ground Rents Fund,
Speaker 1: which is fascinating, isn't it, Because we've been through this
Speaker 1: whole cycle in the UK of discussing quite rightly the
Speaker 1: appallingness of our leasehold system and how bizarre it is
Speaker 1: that people get caught up in these huge service charges
Speaker 1: and difficulties of having a leasehold. And then of course
Speaker 1: there's ground rents. Ground rents, which is how any people
Speaker 1: pay for nothing. There is there to lease a piece
Speaker 1: of land that most people rather believe that they already owned,
Speaker 1: and it turns out that they don't. And ground rents
Speaker 1: on olderlase holds are very low peppercorn stuff, but on
Speaker 1: newer lease holds we found that they can be very expensive.
Speaker 1: So as this conversation has become increasingly political, and there's
Speaker 1: been conversation about positively a polishing the lease hold system altogether,
Speaker 1: which apparently my go now tells us is quit too complicated.
Speaker 1: The ground rent as share price of the grounds Rent
Speaker 1: Trust genuinely collapsed, didn't it.
Speaker 4: Yes, I think still the nethactic values in the nineties,
Speaker 4: the shares are training around thirty odd. I think we've
Speaker 4: paid a bit more than where we are at the moment.
Speaker 4: I think most of the shares we've bought for sort
Speaker 4: of thirty seven to thirty eight pence. I think that
Speaker 4: ground rents has work perfectly wealthy as in years, but
Speaker 4: going back five or ten years, there were excesses, particularly
Speaker 4: introduction by the housebuilders of ground rents on houses, because
Speaker 4: that makes no sense whatsoever. The point of a ground
Speaker 4: rent is if you've got a block of flats, you
Speaker 4: don't want the person who owns the ground floor not
Speaker 4: looking up the foundations, for example, and therefore it's practical
Speaker 4: that there is a three holder and you lease from them.
Speaker 4: That's a practical reason. But a house there isn't that need,
Speaker 4: and therefore they should never have ground rents, And it
Speaker 4: was the excesses a few years back has then created
Speaker 4: a bit of a backlash. But if you wanted to
Speaker 4: and I don't think ground rents will exist in the
Speaker 4: future in the way and there won't be an asset
Speaker 4: class of owning ground rents. But what's going to happen
Speaker 4: to the existing ones is what we're looking at. And
Speaker 4: if the effectively they were abolished and the owner's asset
Speaker 4: was wiped out, I think it would all end up
Speaker 4: in the courts because the law lords have said it's
Speaker 4: people's human rights to actually retain what they're actually purchased.
Speaker 4: There will be a compromise somewhere down the road which
Speaker 4: ground rents won't be effectively confiscated, but these things won't
Speaker 4: exist in the future. There won't be new ground rents
Speaker 4: or there'll be a new system for it. So basically
Speaker 4: it's a call that there will be a compromise. You
Speaker 4: might get fifty or sixty pence a share for your
Speaker 4: ground rents, but it's kind of grind on for a
Speaker 4: long period of time there. God was talking about it
Speaker 4: last night and clearly the bits and piece I saw
Speaker 4: just from the from the news is he's backing off
Speaker 4: a long way from his previous position, which is which
Speaker 4: should inferior be very positive for Grammar Rents income Trust.
Speaker 4: But I haven't had a look to see this morning.
Speaker 4: I don't think there's been any change in the share price,
Speaker 4: but then they probably wouldn't even if there were dramatically
Speaker 4: good news. Nobody would notice because nobody cares. And that
Speaker 4: cuts back to a lot of the opportunities that we exploited,
Speaker 4: just overlooked and unloved rather than.
Speaker 1: So that's at a whopping great discount and that will
Speaker 1: probably come good over time.
Speaker 4: Massive discount, but obviously bear in mind, yeah, the NAV,
Speaker 4: I think it's like in the low nineties, but there
Speaker 4: is a material uncertainty crawls in there from Sevil's because
Speaker 4: nobody really knows what they're worth. You have to treat
Speaker 4: the NAV figure with extreme caution. But even if it
Speaker 4: was even if it was halved, that would still be
Speaker 4: a reasonable gain from where the share price is today.
Speaker 1: Now there has been there is a catalyst coming into
Speaker 1: the maked in the form of a few activist investors
Speaker 1: right who are looking at some of the investment trusts
Speaker 1: on Discounts Center, attempting to push the directors and the
Speaker 1: management to do buy bags to merge this kind of thing.
Speaker 1: And the one we hear the most about is Saba,
Speaker 1: which is an American activist investor that has been quite
Speaker 1: active in the investment trust market recently, and that to
Speaker 1: a degree is a beginning of a catalyst, right.
Speaker 4: Yes. Now, ever, it comes back to the point I
Speaker 4: was making earlier that you know that if the stock
Speaker 4: market can't value these things properly, if they leave them
Speaker 4: trading at wide discounts because of an oversupply situation, because
Speaker 4: of at the moment the cost disclosure problem. For example,
Speaker 4: it doesn't affect the quality of the underlying assets. So
Speaker 4: if all these trusts sit trading at sixty seventy pens
Speaker 4: in the pound, somebody likes SABA or the others coming
Speaker 4: behind them will will come and take those assets. Because
Speaker 4: if you if an investment trust trades on a massive discount,
Speaker 4: in theory, there's nothing stopping you buying lots and lots
Speaker 4: of shares and forcing it into wind down, which is
Speaker 4: what SABA. That's their gameplay, and therefore that as you said,
Speaker 4: that's the next catalyst coming along. If these things stay
Speaker 4: where they are trading at the moment, then it will
Speaker 4: be m and A that narrows the discount.
Speaker 1: Yeah, as John and I keep saying over and over
Speaker 1: again about cheap things, if you don't buy them, somebody
Speaker 1: else will and then you'll be sorry. Nick, are there
Speaker 1: any investment trusts in your portfolio that we haven't talked
Speaker 1: about that you feel there and absolutely must mention?
Speaker 4: Oh, let's have a look a couple of final ones,
Speaker 4: one sort of two or three I think one recent
Speaker 4: acquisition is Ship, which is effectively a shipping line. Ship
Speaker 4: is the ticker. Its actual name is tough To Oceanic.
Speaker 4: But we think that's an interesting one in that they've
Speaker 4: put a date on the fund that they will start
Speaker 4: winding down after twenty eighteen or sort of not eighteen
Speaker 4: twenty twenty eight, so you know that there's a trust
Speaker 4: they're trading on a big discount, where the discount will
Speaker 4: narrow and you will get an exit if you stick
Speaker 4: around for three or four years at a time, where
Speaker 4: you know, environmental pressures means that regulations dictate that ships
Speaker 4: or commercial shipping has to travel much slower to be
Speaker 4: more green, which effectively removing capacity, which will help pricing.
Speaker 4: The other thing that's removing capacity is that there's been
Speaker 4: a booming building container ships, and Toughan doesn't own that
Speaker 4: that sector, but that's blocked out all the boat yards
Speaker 4: and the construction yards for many years. Hence, again it's
Speaker 4: coming back to the point, you've got increasing demand and
Speaker 4: you've got shrinking supply, and therefore shipping rates are likely
Speaker 4: to increase, and therefore buying into a shipping trust on
Speaker 4: a big discount seemed to a rather attractive route. One
Speaker 4: that slightly amusing one was Eco fin Us Renewables, which
Speaker 4: had as a solar farm wiped out in South Texas
Speaker 4: at a place called Whirlwind, And maybe we should have
Speaker 4: been asked questions about why the name of Whirlwind, But
Speaker 4: then that asset was wiped out by a tornado and
Speaker 4: the share price absolutely tanked. But of course it was
Speaker 4: all covered by insurance, and therefore that was an opportunity.
Speaker 4: And also we have exposure to the UK small caps,
Speaker 4: and we don't think institutions will ever come back to
Speaker 4: buying UK small camps, but the ratings are just so
Speaker 4: low that the UK trades are the much at a
Speaker 4: big discount of the world mid and small caps tried
Speaker 4: at a trade at the big discount to large caps
Speaker 4: and microcaps trade at the bigger discount. All it's almost
Speaker 4: like a sort of a Russian doll of discounts. You
Speaker 4: then say, you can actually buy these assets within an
Speaker 4: investment trust at a twenty percent discount to these bond
Speaker 4: out levels. So as I said, and again that's very
Speaker 4: similar to what's happening into the trust world, that these
Speaker 4: things are very lowly rated because the institutions can't buy
Speaker 4: them because the institutions, institutional traders now so large and
Speaker 4: even all of one hundred million bound companies just wouldn't
Speaker 4: move the needle, so they're not coming back. But these
Speaker 4: are the companies chatting out decent profits in the real
Speaker 4: world and somebody will come and take them. And if
Speaker 4: you can buy into that world on a twenty discount,
Speaker 4: then over time, that's the value is going to be extracted.
Speaker 1: And which trust is it you hold to reflect that?
Speaker 1: Is that River Mercantile.
Speaker 4: We've got ryver working on microcapitters the largest, but we've
Speaker 4: also got rights and issues. We've got downing for a
Speaker 4: little bit longer because that's being weighn down, so it's
Speaker 4: more of a package really, but working on microcapures is
Speaker 4: the largest one.
Speaker 1: Okay, brilliant Nick, thank you so much. I think I've
Speaker 1: taken up enough of your time and that was really
Speaker 1: interesting and lots of fascinating trusts as well. But before
Speaker 1: you go, I have to ask you the final question
Speaker 1: that I always ask everybody on this podcast, and you
Speaker 1: do have to answer it, whether you want to or not.
Speaker 1: Although I was told by a listener the other day
Speaker 1: that it's getting boring and I need to add something
Speaker 1: else to the question. But I'm not going to do
Speaker 1: that today. If I asked you to choose between gold
Speaker 1: and bitcoin over a ten year period, which we you choose.
Speaker 4: I think I understand gold. I'm not sure I'm the
Speaker 4: generation understands bitcoin, and I'm just concerned that one day
Speaker 4: we find out it's worthless, which isn't going to happen
Speaker 4: on gold. But that's probably an answer typical of my generation.
Speaker 1: I'm afraid it is. I'm afraid it is. It's the
Speaker 1: normal answer that we get on this poddle that we
Speaker 1: have had a couple of surprises along the way, a
Speaker 1: couple of surprises along the way, and I always come
Speaker 1: down on the side of gold. And we have a
Speaker 1: lot of listeners and a lot of readers who are
Speaker 1: constantly explaining to me why I'm wrong. So one day
Speaker 1: maybe I'll understand why I'm wrong and why you're wrong
Speaker 1: as well. But we'll wait for that to happen. Nick,
Speaker 1: thank you so much for joining us today.
Speaker 4: Wrong Thanks Nick, brilliant.
Speaker 1: Thanks so much, John. I thought that was pretty interesting.
Speaker 1: I tell you what, Nick really knows what he's talking
Speaker 1: about when it comes to investment trust. He's always my
Speaker 1: favorite investment trust guest, what did you learn from this?
Speaker 2: I mean, next fascinating and I think that he really
Speaker 2: does get into the weeds or in the structural benefits,
Speaker 2: but also they should structural problems that can investment trust
Speaker 2: face right now. And I just think it's interesting because
Speaker 2: again sort of seeing this weird deck over the UK
Speaker 2: market as a whole, where you've got perfectly decent kind
Speaker 2: of companies that are being essentially undervalued because there are
Speaker 2: flaws in the regulatory regime and also because of consolidation
Speaker 2: within the wealth management area. Means that a lot of
Speaker 2: these trusts and a lot of these companies are just
Speaker 2: not big enough for any of these kind of big
Speaker 2: managers to want to put their money in because they
Speaker 2: won't make a difference to their portfolios overall, so I.
Speaker 1: Thought, and liquidity, they can't get in an out when
Speaker 1: they're too small.
Speaker 2: I know, I mean, but yeah, because that's the other thing.
Speaker 2: Even whenever I've been writing about investment trusts, you know,
Speaker 2: on an on and off basis for years obviously, and
Speaker 2: one of the things that you notice particularly now is
Speaker 2: whenever if I'm writing about for Bloomberg is you start
Speaker 2: to say, oh, wait, a minute. If you know, the
Speaker 2: bid offer spread on that one, as in, the gap
Speaker 2: between the price of which you can buy today and
Speaker 2: then immediately sell is so big that you can't realistically
Speaker 2: tell a private investor that that's a good idea because
Speaker 2: they have to make ten percent before they've even you know,
Speaker 2: got back to zero. So I do think I mean,
Speaker 2: I thought this was like really interesting and also it's
Speaker 2: really good to have someone out there who is basically
Speaker 2: an investment trust, a treasure that normal people can get
Speaker 2: access to. You know, he's because a lot of this
Speaker 2: is just activism that he's talking about. I mean, the
Speaker 2: JP Morgan India Trust is a good one. You know,
Speaker 2: he's kind of he's done, he's done the details, read
Speaker 2: the paperwork, and has kind of said, well, actually, wait
Speaker 2: a minute, if if this trust, you know, has to
Speaker 2: follow its rules, then it means that I'm going to
Speaker 2: be up because you know, this amount of it is
Speaker 2: going to be redeemed at par and so yeah, that
Speaker 2: kind of I just I really like they can away
Speaker 2: thinks about trust.
Speaker 1: One of the things that I was found attractive. But
Speaker 1: the so many things I find attractive. Listen and Nick
Speaker 1: and I talk about this, but one of the things
Speaker 1: that that we wrote as nown is that and longer term,
Speaker 1: investment trusts have tended to outperform open ended funds particularly
Speaker 1: often have an open ended fund and a closed ended
Speaker 1: fund closed ending another way of saying, investment trust run
Speaker 1: by the same investment house, by the same fund management group,
Speaker 1: and historically have found that the investment trust outperforms the other. Now,
Speaker 1: what we don't know is if that's going to keep
Speaker 1: happening going forward, because one of the reasons for it
Speaker 1: historically has been that investment trust has been cheaper than
Speaker 1: open ended funds, and I kind of not anymore because
Speaker 1: the cost of open ended funds has come down so much,
Speaker 1: partially thanks by the way, to you and me, John,
Speaker 1: all the years we've spent agitating for reduced fees, we
Speaker 1: have managed to get a lot of these fund management
Speaker 1: houses to push down their management fees, and that has
Speaker 1: had the effect of making investment trust not quite as
Speaker 1: cheap as they used to be. So now we get
Speaker 1: to find out. We get to find out whether the
Speaker 1: other great things about investment trusts having bores that are
Speaker 1: beholden absolutely to the shareholder, having the ability to use
Speaker 1: some leverage, etc. Whether these things are enough to keep
Speaker 1: the app performance going over the longer term. I personally
Speaker 1: believe that they are, because I think that the in
Speaker 1: particular the idea of having a pool of permanent capital
Speaker 1: is very attractive to a manager and should make a
Speaker 1: difference to the way they operate. But it's not a given,
Speaker 1: so it's an interesting time. The only other thing to
Speaker 1: say about that, of course, is that the discounts at
Speaker 1: the moment are phenomenally high relative to history, or that
Speaker 1: they've closed a better over the last six months, and
Speaker 1: whenever discounts are at this kind of level, you end
Speaker 1: to see very good performance afterwards. The AIC and we
Speaker 1: might put a link to the a C and the
Speaker 1: show notes because they've done some excellent work on this
Speaker 1: and everything you need to know about investment trusts of
Speaker 1: any kind as on the AIC website. Or are there
Speaker 1: any of the trust that we talked about in particular
Speaker 1: John that you thought, oh, we aren't going to go
Speaker 1: and buy that one? Not financial advice obviously.
Speaker 2: So the ones are more interested in at moments though.
Speaker 2: Are the plavate equity points? Yeah? I just think here's
Speaker 2: point about they have been particularly widely hurt by the
Speaker 2: feed this closure screw up basically, and then on top
Speaker 2: of that, you've got the concerns about what the underlying
Speaker 2: valuations are. But if you look at I mean, like
Speaker 2: rec Capital came out the other day and their private
Speaker 2: assets had kind of nudged a bit higher, and when
Speaker 2: you look at stock markets, stock markets have all gone higher,
Speaker 2: it's hard to believe that the underlying value of these businesses,
Speaker 2: assuming that they generate cash flows, which a lot of
Speaker 2: them do, are not basically what they say on the NAV.
Speaker 2: And even if they're a bit below that, there's still
Speaker 2: a massive discount. So I do I'm still reluctant. I
Speaker 2: don't know why I'm reluctive, but I sort of feel
Speaker 2: as if there's I'm not high conviction about it. But
Speaker 2: I think the private equity is probably the most interesting
Speaker 2: area at the moment.
Speaker 1: Still all right, to capital that has been so disappointing.
Speaker 1: That has been one of the most disappointing trusts. I
Speaker 1: think I remember thinking even fifteen years ago, this was
Speaker 1: a great, solid, long term trust to hold, and it
Speaker 1: kind of hasn't been. If that private equity stuff came good,
Speaker 1: that would be great, but that would be great for
Speaker 1: lots of our listeners. I'm sure. Anyway, I commend thiscast
Speaker 1: to you because it really is very good, and then
Speaker 1: have a look at next Fund, have a look at
Speaker 1: the trust that he talks about, and have a look
Speaker 1: at the AIC website. The investment trust market is really interesting.
Speaker 1: If you're interested in any of these niche areas in
Speaker 1: the market, there aren't very many ways to get access
Speaker 1: to them, and the investment trust sector is probably the
Speaker 1: place to look. Thanks for listening to this week's Marin
Speaker 1: Talks Money. We'll be back next week. In the meantime,
Speaker 1: If you like us, show rate, review, and subscribe wherever
Speaker 1: you listen to your podcast, and of course do tell
Speaker 1: your friends. This episode was hosted by me Maren Sunset Web.
Speaker 1: It was produced by some Mesidi and cam Grave. Additional
Speaker 1: editing by Rushi B J. Cole and special thanks to
Speaker 1: Nick Groomed and to John Staff.