WEBVTT - Investment Trusts May Be the Right Place for Your Money 0:00:00.480 --> 0:00:03.400 John, ma'am. What was the most Exactually, I'm not even 0:00:03.400 --> 0:00:04.800 going to argue that. I'm going to start with the 0:00:04.800 --> 0:00:07.400 most exciting bit of the budget for me yesterday I 0:00:07.480 --> 0:00:09.320 thought it was the British ISA, or what I'm going 0:00:09.400 --> 0:00:12.360 to call the BISA, because I've been looking for that 0:00:12.400 --> 0:00:14.159 for so long, waiting for it, very keen on it. 0:00:14.160 --> 0:00:16.400 It wasn't exactly how I wanted it. It was still exciting. 0:00:16.440 --> 0:00:19.279 We'll come back to that. Most exciting bit was a 0:00:19.360 --> 0:00:23.239 bunk to the Space center in Shetland. Yes, you know 0:00:23.239 --> 0:00:25.639 we've talked about the space a lot on this podcast 0:00:25.960 --> 0:00:29.400 and the idea that the government are behind the idea 0:00:29.440 --> 0:00:33.680 of Shetland being a center for satellite launches, and I 0:00:33.680 --> 0:00:36.879 thought was really something. It's finiche but kind of exciting. 0:00:37.240 --> 0:00:40.640 I was very surprised that you didn't tweeked on it 0:00:40.680 --> 0:00:43.280 as soon as it came out, But then I realized 0:00:43.280 --> 0:00:45.680 it obviously missed it amid the flood of other exciting 0:00:45.760 --> 0:00:48.920 things that came out in that that section of the project. 0:00:49.520 --> 0:00:54.000 No, I didn't miss it. I was just so excited 0:00:54.040 --> 0:00:58.520 by britt Iss or Bises or Bisas or Brices. I 0:00:58.560 --> 0:01:01.520 don't know. We'll figure out where we going with this one? 0:01:02.040 --> 0:01:04.360 That I kept all my excitement about the space center 0:01:04.360 --> 0:01:06.080 to myself, But then, of course, the day after the 0:01:06.080 --> 0:01:09.400 budget had suddenly realized how exciting it wasn't also realized 0:01:09.440 --> 0:01:11.760 that I'm probably and someone let me know if I'm wrong, 0:01:11.800 --> 0:01:14.639 I'm probably one of the very few, maybe the only 0:01:14.840 --> 0:01:19.360 UK journalists who has visited visited the Saxford Space Center 0:01:19.880 --> 0:01:23.440 on the island of or Is it yell, yell, yell, 0:01:23.480 --> 0:01:25.520 and a lot of ioland to go through on the 0:01:25.560 --> 0:01:31.200 way affects this one thoroughly recommended? Is it? Yeah? I'll 0:01:31.280 --> 0:01:31.880 look it up. 0:01:32.120 --> 0:01:35.160 The thing is with Shetland is yeah, I'm sure a 0:01:35.240 --> 0:01:37.280 lovely place. But I can imagine that most journalists with 0:01:37.400 --> 0:01:43.160 the more luck getting a trip to Australia didn't kind 0:01:43.160 --> 0:01:45.720 of get the expenses to go up to share and 0:01:47.000 --> 0:01:53.400 the days off the John, Yeah. 0:01:52.120 --> 0:01:54.760 The flight cancelations and flights to Shatland are super expensive, 0:01:54.800 --> 0:01:56.840 way more expensive than going to Australia to be right, 0:01:57.040 --> 0:01:59.720 Moving on from that, because most people aren't interested in 0:01:59.760 --> 0:02:03.640 space sessions in Chatland. They are interested is John? And 0:02:03.720 --> 0:02:06.400 what you thought was the most interesting part of the budget. 0:02:06.680 --> 0:02:10.359 You know what if this had been the first budget 0:02:10.440 --> 0:02:14.640 of a five year term or you know, the second budget. 0:02:14.680 --> 0:02:18.040 I would actually be quite exciting now because the Chancellor 0:02:18.080 --> 0:02:21.160 basically turned around and put the idea of getting rid 0:02:21.200 --> 0:02:24.560 of National Insurance and merging it with income tax I 0:02:24.639 --> 0:02:28.560 sualy very funly on the table. You know, he not 0:02:28.639 --> 0:02:30.640 only cut it by another two percentage points, but he 0:02:30.680 --> 0:02:32.600 also said in the long run it would be nice 0:02:32.639 --> 0:02:34.920 to get rid of this problem is of course he 0:02:34.960 --> 0:02:37.919 doesn't have the long run. He's probably got about kind 0:02:37.919 --> 0:02:42.240 of six months and then that is not going to 0:02:42.320 --> 0:02:45.680 be kind of maintained by the next government. I wouldn't 0:02:45.680 --> 0:02:48.919 have thought unless there's a very big surprise. So I 0:02:49.240 --> 0:02:52.640 think from my point view that was the most disappointing element, 0:02:52.720 --> 0:02:54.360 and that this would have been a good budget to 0:02:54.400 --> 0:02:57.919 do about three years ago, and the things That also 0:02:58.000 --> 0:03:01.440 feeds into a problem with the British ISA because they're 0:03:01.440 --> 0:03:05.520 having to consult on it. The consultation doesn't end until June. 0:03:07.040 --> 0:03:10.320 Half of the people who are going to be you know, talking, 0:03:10.600 --> 0:03:13.240 are going to be asked about in this consultation, so 0:03:13.560 --> 0:03:17.160 you know, the investment platforms et cetera. Certainly from the 0:03:18.360 --> 0:03:21.359 points on Twitter, seem to be kind of thinking, well, 0:03:21.760 --> 0:03:24.520 chances are this isn't going to happen before the next election, 0:03:24.600 --> 0:03:26.919 and so it's never going to harm So I think 0:03:26.960 --> 0:03:30.320 that's probably the big disappointment. That's would actually been a 0:03:30.360 --> 0:03:34.040 pretty good budget if they had any room left to run, 0:03:34.120 --> 0:03:34.880 but they don't. 0:03:35.080 --> 0:03:36.640 Yeah, I agree with you. I mean, you know, I've 0:03:36.640 --> 0:03:39.160 been you and I have been calling for the merger 0:03:39.320 --> 0:03:42.720 of national insurance and income tax for a long long time. 0:03:43.800 --> 0:03:45.600 But this is a really interesting way to do it, 0:03:45.800 --> 0:03:49.480 to gradually cut national insurance down, desiri abolishing it. It's 0:03:49.520 --> 0:03:52.520 just making it kind of disappear, and income tax goes 0:03:52.600 --> 0:03:55.120 up at the same time to compensate. And what would 0:03:55.160 --> 0:03:58.680 have been absolutely amazing. You know, I know I bang 0:03:58.720 --> 0:04:01.360 on about this a lot, but here you have riches, 0:04:01.400 --> 0:04:05.240 Unak and Hunt. They haven't got much time left. And 0:04:05.400 --> 0:04:06.920 with that in mind, they haven't got much time left. 0:04:06.960 --> 0:04:09.080 We know they've got nothing to lose. They're very probably 0:04:09.120 --> 0:04:11.560 going to lose. It is miracle to win, right, So 0:04:12.040 --> 0:04:15.800 they have this one off chance, one off chance to 0:04:15.880 --> 0:04:18.760 do a couple of things that would really move the 0:04:18.839 --> 0:04:21.440 dial for the UK, really change things. And one of 0:04:21.440 --> 0:04:22.960 those things would have been actually to go all the 0:04:22.960 --> 0:04:25.480 way with National Insurance yesterday. You got to got that 0:04:25.520 --> 0:04:27.479 through before April if you'd really pushed it or had 0:04:27.520 --> 0:04:29.240 been done and dusted, And what a gift to the 0:04:29.320 --> 0:04:30.440 nation it would have been. 0:04:32.960 --> 0:04:36.920 Yeah, And if they felt like really going for it, 0:04:37.000 --> 0:04:39.960 they could have offset it by in poison capital gains 0:04:40.040 --> 0:04:44.080 tax or in residential property and getting a distamp duty 0:04:44.080 --> 0:04:44.760 at the same time. 0:04:46.200 --> 0:04:48.040 Well, we've been calling for that, you and I again 0:04:48.200 --> 0:04:51.360 for a couple of decades, haven't We never happened, but again. 0:04:51.200 --> 0:04:59.560 Incredibly politically unpopular, but would be really great for the economy, 0:05:00.040 --> 0:05:02.480 for the housing market, for everything, But impossible to do 0:05:02.880 --> 0:05:06.400 unless like this too, you've got nothing left to loose. 0:05:08.279 --> 0:05:10.640 Yeah, I mean, so I think this is the one. 0:05:11.880 --> 0:05:14.320 Well again, it's the other slightly disappointing thing is like, 0:05:14.360 --> 0:05:16.640 this is your one chance to grasp a political natal 0:05:17.240 --> 0:05:18.800 that no one else is going to be able to 0:05:19.080 --> 0:05:24.920 go in the year, and you let's it go, presumably 0:05:24.960 --> 0:05:28.039 because you don't want the back being trobellions and things 0:05:28.080 --> 0:05:29.039 like that that we've come about. 0:05:30.120 --> 0:05:32.760 Yeah, and let's go back to the British I said briefly, 0:05:32.800 --> 0:05:35.039 because one of the things I found interesting about that 0:05:35.160 --> 0:05:36.480 is that you and I agree it's a good idea. 0:05:36.600 --> 0:05:38.320 Lots of people agree it's a good idea. It didn't 0:05:38.320 --> 0:05:40.479 come out in quite the form we would have expected. 0:05:40.480 --> 0:05:43.400 Obviously it's only a consultation, but it doesn't if it 0:05:43.440 --> 0:05:45.200 comes into play as it is at the moment, it 0:05:45.240 --> 0:05:47.839 doesn't take up part of the existing allowance. It's a 0:05:47.880 --> 0:05:50.440 new allowance on top of which means that as most 0:05:50.480 --> 0:05:52.520 people don't use their full allowance anyway. I think it's 0:05:52.520 --> 0:05:54.640 between ten and fifteen percent of people use their full 0:05:54.640 --> 0:05:56.800 allowance depending on the year. In a way, it's more 0:05:56.839 --> 0:05:59.680 simpbolic than anything else in that you know, anyone who's 0:05:59.680 --> 0:06:02.240 going to invest in UKCUI can easily do so within 0:06:02.360 --> 0:06:05.200 the within the twenty thousand, So there aren't that many 0:06:05.240 --> 0:06:07.200 people who are going to use that five thousands who 0:06:07.240 --> 0:06:10.000 are not expecting, you know, tens of billions of pounds 0:06:10.000 --> 0:06:12.480 to suddenly flow into the UK market. And then we 0:06:12.520 --> 0:06:14.400 got lots of people going straight down into the weeds 0:06:14.440 --> 0:06:16.880 of what is a UK company? Why would a company 0:06:16.880 --> 0:06:19.360 with foreign operations count? How we're going to divide this up? 0:06:19.360 --> 0:06:22.279 Doesn't investment trust? It invests a broad count. Does this count? 0:06:22.279 --> 0:06:22.880 Does that count? 0:06:22.880 --> 0:06:23.040 Well? 0:06:23.080 --> 0:06:25.840 I think completely missing the point, which is not about 0:06:26.080 --> 0:06:30.280 specific companies and where their operations are. It's about the popularity, 0:06:30.360 --> 0:06:34.360 liquidity and valuations inside the UK market. So to me, 0:06:34.520 --> 0:06:37.839 even the symbolism of it is enough, a symbolism of 0:06:37.920 --> 0:06:40.279 showing that the government is aware of this problem, prepared 0:06:40.279 --> 0:06:42.799 to put in place incentives to move into the UK market. 0:06:42.960 --> 0:06:46.400 And it's about the efficiency and efficacy of the UK 0:06:46.520 --> 0:06:49.400 market as a whole, not about wibbling away about whether 0:06:50.120 --> 0:06:52.880 you know one company counts as a UK company or 0:06:52.880 --> 0:06:55.080 another company doesn't count as the UK company. It's about 0:06:55.080 --> 0:06:58.719 our capital markets. Am I missing something? No? 0:06:58.880 --> 0:07:00.839 I mean, that's exactly right. And the things a lot 0:07:00.880 --> 0:07:02.840 of people wibbling about that are the same people who 0:07:02.839 --> 0:07:06.640 are wibbling about ARM not listing in the UK and 0:07:06.800 --> 0:07:09.200 kind of like, well, Arms a UK company but was 0:07:09.240 --> 0:07:11.440 not listed here and we were all moaning about that 0:07:11.480 --> 0:07:14.640 when it happened. Now this is about addressing that it's 0:07:14.720 --> 0:07:19.120 not actually a book, and of boosting British business as 0:07:19.160 --> 0:07:23.320 in businesses that are in Britain. And also but the 0:07:23.360 --> 0:07:27.000 other thing I thought was important is that idea of 0:07:27.560 --> 0:07:32.280 getting DC pension schemes to explicitly say where they are. 0:07:32.320 --> 0:07:36.040 The auto enrollment schemes basically say explicitly how much of 0:07:36.080 --> 0:07:39.360 their portfolio is in UK equities. So it's that whole 0:07:39.640 --> 0:07:44.960 nudge towards a market that is clearly being neglected for 0:07:45.080 --> 0:07:47.920 reasons that are not related to the actual companies that 0:07:47.960 --> 0:07:50.280 are listed on it. And that's what I think is 0:07:50.320 --> 0:07:54.320 really interesting is that today's guest kind of delves into 0:07:54.440 --> 0:07:57.600 something very very similar because you talk about the investment 0:07:57.640 --> 0:08:01.480 trust market and a lot of the issues surrounded investment 0:08:01.480 --> 0:08:04.080 trusts and have come desk going so purely to do 0:08:04.160 --> 0:08:06.920 with market structure and nothing to do with the underlying 0:08:06.960 --> 0:08:09.680 companies and the UK market as a wholeways basically get 0:08:09.720 --> 0:08:13.760 the same problem. So addressing that is what we're doing. 0:08:13.920 --> 0:08:15.440 And yeah, I mean they should have got read the 0:08:15.480 --> 0:08:18.360 stamp duty when shares. That would have been good that 0:08:18.600 --> 0:08:22.280 with the course of money, So at least this is 0:08:22.320 --> 0:08:22.880 a start. 0:08:23.720 --> 0:08:26.160 Yeah, there is a hint and actually I've written about 0:08:26.160 --> 0:08:28.280 this week. There is a hint in here of the 0:08:28.360 --> 0:08:31.240 return of financial oppression. Though isn't there a hint of 0:08:31.280 --> 0:08:35.520 the direction of capital and directions that the state wants 0:08:35.520 --> 0:08:37.280 it to go in? And I was looking back to 0:08:37.440 --> 0:08:40.160 the end, you know, or the last gasps of financial 0:08:40.160 --> 0:08:43.079 oppression last time around, financial oppression, by the way being 0:08:43.160 --> 0:08:46.000 just a it'sually complicated. Look it up, look it up. 0:08:46.000 --> 0:08:47.959 We haven't got time to run through financial oppression. Here 0:08:48.080 --> 0:08:50.160 lots of different ways to help governments run down their 0:08:50.200 --> 0:08:54.640 debt without explicitly taking extra money from people to do so. 0:08:55.120 --> 0:08:58.360 But looking at the last gasp of financial oppression in 0:08:58.400 --> 0:09:02.200 the nineteen seventies, in late nineteen seventy nine, when capital 0:09:02.240 --> 0:09:05.280 controls were removed, and at that point the point which 0:09:05.320 --> 0:09:07.400 we went allowed to send money abroad or investor broad. 0:09:08.000 --> 0:09:10.520 At that point, UK penton funds have pretty much all 0:09:10.520 --> 0:09:13.920 their money in UK equities. Right the day that capital 0:09:13.920 --> 0:09:18.320 controls were removed, the FT index fell by about three percent, 0:09:19.120 --> 0:09:22.040 and it did so because everyone immediately believed that people 0:09:22.040 --> 0:09:24.800 would stop sending their money in broad investing in foreign markets. 0:09:24.960 --> 0:09:28.320 And do you know what they expected absolute tiptop max. 0:09:28.640 --> 0:09:32.280 They expected that UK pension funds would allocate about ten 0:09:32.360 --> 0:09:36.440 percent of their equity allocations abroad. In fact it ended 0:09:36.480 --> 0:09:39.240 up being closer to one hundred percent. That's fascinating. So 0:09:39.360 --> 0:09:42.520 this is a little pullback, isn't that. It's a little 0:09:42.559 --> 0:09:44.840 pullback saying you know, come on to take here. Let's 0:09:44.880 --> 0:09:48.240 go back a little. Let's go back a little, son, 0:09:48.520 --> 0:09:53.199 I sense the beginning of a pullback towards the repression 0:09:53.400 --> 0:09:54.800 of the post war period. 0:09:55.160 --> 0:09:57.440 Well, on that point, where I thought was interesting is 0:09:57.440 --> 0:10:00.840 that as part of the consultation these sort of noddy 0:10:00.880 --> 0:10:03.840 to the idea or should guilts be allowed to be 0:10:03.920 --> 0:10:08.560 held as part of your five grand UK only allowance? 0:10:09.040 --> 0:10:12.400 I thought that's quite interesting. You know, this nigsty Ward 0:10:12.480 --> 0:10:16.559 is getting retail investors buying more government io use basically 0:10:17.520 --> 0:10:20.920 and having a specific allowance that allows them to do so. 0:10:20.920 --> 0:10:24.280 So effectively, you're kind of saying it's a cash iSER, 0:10:24.320 --> 0:10:28.400 but a cash isser that can hold guilts or uk 0:10:28.480 --> 0:10:29.640 O westate the equities. 0:10:29.840 --> 0:10:31.520 And do you know what I think, John, I think 0:10:31.559 --> 0:10:35.040 it's quite likely that over time it wouldn't be you 0:10:35.040 --> 0:10:37.920 can hold gilts if you want, it'll be, oh, do 0:10:37.960 --> 0:10:40.959 you know what, you have to hold guilts? You have 0:10:41.040 --> 0:10:45.439 to hold guilts. And that's classic financial oppression, directing people's 0:10:45.440 --> 0:10:50.120 capital such that they are forced obliged to help finance 0:10:50.160 --> 0:10:54.000 the government whether they want to or not. And that's 0:10:54.120 --> 0:10:56.840 the hint that I think we saw in this budget, 0:10:56.880 --> 0:10:58.920 and that's one of the reasons that I found it searched. 0:11:03.800 --> 0:11:06.320 Welcome to Merin Talks Money, the podcast in which people 0:11:06.360 --> 0:11:08.560 who know the markets explain the markets. I'm mere and 0:11:08.559 --> 0:11:11.440 sumset web. This week it's all about investment trusts for 0:11:11.480 --> 0:11:13.280 those who might not know. And investment trust is that 0:11:13.360 --> 0:11:16.160 it is simplest just to company the business of which 0:11:16.320 --> 0:11:19.400 is to buy other companies. So it's a quoted company, 0:11:19.440 --> 0:11:21.760 it's listed on the Stock Exchange and in the main 0:11:21.840 --> 0:11:25.760 you will only find the structure in the UK. So 0:11:25.800 --> 0:11:27.760 to walk us through everything there is to know about 0:11:27.800 --> 0:11:29.680 investment trust and to tell us why we should be 0:11:29.679 --> 0:11:32.319 buying them right now, I spoke with Nick greenwot he 0:11:32.400 --> 0:11:35.640 co manages the Migo Opportunities Trusted as a Value Partners 0:11:35.800 --> 0:11:40.439 and before that he was at Premier My investor. Nick, Hi, 0:11:40.520 --> 0:11:41.920 thank you so much for joining us today. 0:11:42.200 --> 0:11:43.360 It's a pleasure listen. 0:11:43.400 --> 0:11:46.120 I want to start Nick by talking about the structure 0:11:46.120 --> 0:11:48.959 of investment trust. You and I are both great fans 0:11:49.040 --> 0:11:51.280 of investment trusts and both think of them as being 0:11:51.320 --> 0:11:54.040 one of the greatest of investment vehicles for the retail 0:11:54.080 --> 0:11:56.280 investor in particular, and I wondered if we could just 0:11:56.360 --> 0:12:01.000 start with you explaining what exactly it is. We're talking about, 0:12:01.080 --> 0:12:03.080 what is an investment trust as opposed to any other 0:12:03.200 --> 0:12:06.480 kind of collective investment vehicle, and what makes it, to 0:12:06.600 --> 0:12:09.800 your mind superior in some ways to other types of 0:12:09.800 --> 0:12:10.600 investment vehicle. 0:12:11.120 --> 0:12:13.720 Yeah, investment trusts are peculiarly British thing. They don't really 0:12:13.720 --> 0:12:17.080 exist elsewhere in the world. There are pockets in various places, 0:12:17.160 --> 0:12:20.600 but the most collectives are open ended funds. So you 0:12:20.679 --> 0:12:22.160 put your money in, you take money out on a 0:12:22.200 --> 0:12:25.600 daily basis, and if you redeem you want your money back. 0:12:25.640 --> 0:12:27.679 The fund manager has to sell stuff in the portfolio 0:12:27.679 --> 0:12:29.079 to hand it back to you, which means that you 0:12:29.200 --> 0:12:31.240 have to run any really works if you have quite 0:12:31.280 --> 0:12:34.520 a liquid portfolio. Where an investment trust is structured a 0:12:34.520 --> 0:12:36.680 bit like an industrial company, a fixed number of shares 0:12:36.679 --> 0:12:38.400 in the market, and you want to buy or sell, 0:12:38.760 --> 0:12:41.199 you've got to go to the stock market to get 0:12:41.240 --> 0:12:42.880 an order, just as if you were buying or selling 0:12:42.920 --> 0:12:45.319 Marks and Spencer, and it's a bit fiddly, But what 0:12:45.360 --> 0:12:48.520 that means is the fund manager doesn't have to buy 0:12:48.679 --> 0:12:50.960 or sell from the underlying portfolio, which means they can 0:12:50.960 --> 0:12:53.600 put a lot more conviction into the portfolio and really 0:12:53.600 --> 0:12:56.400 focus on their strongest views and not worry too much 0:12:56.400 --> 0:12:58.960 about having an investment that they couldn't sell instantly. I 0:12:59.040 --> 0:13:01.560 run both, and the differences are really that in some 0:13:01.640 --> 0:13:04.839 of some really interesting stocks that aren't particularly liquid, I 0:13:04.920 --> 0:13:07.400 might have four percent of the portfolio in it. In 0:13:07.440 --> 0:13:09.320 the open ended fund, where I've always got to know 0:13:09.360 --> 0:13:11.040 where a few million is going to come from by 0:13:11.120 --> 0:13:13.360 twelve o'clock the following day, that might only be a 0:13:13.400 --> 0:13:15.440 two percent position because the liquidity isn't there to be 0:13:15.520 --> 0:13:18.080 certain that you can sell there's a run on your fund. 0:13:18.760 --> 0:13:21.000 And therefore what you find is investment trusts with the 0:13:21.000 --> 0:13:24.319 same managers tend to outperform their equivalent TOIG. 0:13:25.440 --> 0:13:28.559 Okay, so what you effectively have in most cases not all, 0:13:28.600 --> 0:13:31.280 of course, because will come later maybe to buybacks in 0:13:31.360 --> 0:13:35.120 discounts and redemptions and windings up, etc. But in essence, 0:13:35.160 --> 0:13:37.640 what you've got is a permanent portfolio. 0:13:38.120 --> 0:13:40.800 Yeah, permanent capital is one way of describing it. 0:13:40.679 --> 0:13:43.640 Which is very different to having a portfolio that constantly 0:13:43.640 --> 0:13:47.200 fluctuates in size. And that's the key difference. 0:13:47.480 --> 0:13:49.600 Yeah, and you don't have to obsess about the liquidity, which 0:13:49.640 --> 0:13:52.559 is important. It gives you more stocks and more companies 0:13:52.600 --> 0:13:55.040 and more investments to choose from than the rivals who 0:13:55.040 --> 0:13:56.559 are running open ended funds. 0:13:57.040 --> 0:14:00.400 And the other differences are that an investment trust will 0:14:00.440 --> 0:14:03.920 have or should have a fairy engaged board of directors 0:14:03.960 --> 0:14:05.880 whose job it is to look out for the shareholder, 0:14:06.080 --> 0:14:08.920 and that's something that's quite important. And of course an 0:14:08.920 --> 0:14:13.680 investment trust can borrow money to try and improve returns overall, 0:14:13.920 --> 0:14:16.520 and that's something that most open ended funds can't. 0:14:16.320 --> 0:14:17.839 Do indeed, all right. 0:14:17.880 --> 0:14:19.840 And the other thing that's very important when you're talking 0:14:19.840 --> 0:14:23.640 about investment trust is the idea of discounts and premiums. 0:14:23.680 --> 0:14:27.880 So because an investment trust is effectively a listed company, 0:14:28.120 --> 0:14:31.360 the business of which is to invest in other assets, 0:14:31.720 --> 0:14:35.640 be they shares in other companies or be they a 0:14:35.680 --> 0:14:38.120 stake in a renewable energy project or something like that, 0:14:38.720 --> 0:14:41.440 it is possible for the shares and investment trust to 0:14:41.560 --> 0:14:44.120 trade add a discount to the nests aut of value 0:14:44.320 --> 0:14:46.200 or at a premium to the ness aut of value. 0:14:46.280 --> 0:14:46.400 Right. 0:14:46.400 --> 0:14:49.880 So that's a very important part of investment trust investing 0:14:49.960 --> 0:14:51.960 is to understand how that works. Is that fair? 0:14:52.280 --> 0:14:53.920 Yeah, it's fair because as when you go into the 0:14:53.920 --> 0:14:56.760 stock market and the price you pay is not decided 0:14:56.760 --> 0:14:58.520 by the value of the underlying port Foilio. Well, there 0:14:58.520 --> 0:15:01.480 are obviously influences that the price where the balance of 0:15:01.480 --> 0:15:04.240 buyers and sellers comes and when you get periods of 0:15:04.400 --> 0:15:06.920 oversupply and lack of interest, that the share price that 0:15:06.960 --> 0:15:09.040 you can pay can be a substantial discount to the 0:15:09.080 --> 0:15:11.920 value of the underlying portfolio. And we'll touch on it later, 0:15:11.960 --> 0:15:14.240 I'm sure, but that's the number of what we're looking for. 0:15:14.560 --> 0:15:17.040 We're looking for things that are just effectively trading at 0:15:17.040 --> 0:15:20.240 the wrong price just because nobody cares about them at 0:15:20.280 --> 0:15:20.680 the moment. 0:15:20.960 --> 0:15:22.680 Yeah, And this is where we come back to what 0:15:22.720 --> 0:15:25.800 we were talking about earlier. Whereas in the main and investment 0:15:25.880 --> 0:15:29.040 trust has a sort of permanent portfolio in the cash 0:15:29.120 --> 0:15:31.280 under management doesn't change all the time with people coming 0:15:31.320 --> 0:15:34.160 in out. But if there's a very big discount, the 0:15:34.240 --> 0:15:37.280 directors may decide to buy back shares, which of course 0:15:37.320 --> 0:15:39.720 shrinks the size of the trust, or if it's trading 0:15:39.720 --> 0:15:42.160 at a premium, they may decide to issue more shairs, 0:15:42.440 --> 0:15:45.080 which enhances the size of the trust. So it's not 0:15:45.160 --> 0:15:48.880 necessarily always a portfolio that isn't changing, but it's the 0:15:48.920 --> 0:15:50.640 discretion of the directors. 0:15:51.200 --> 0:15:55.200 But the interesting point on buybacks is, unlike with an 0:15:55.200 --> 0:15:56.920 open ended fund where you just get an email at 0:15:56.920 --> 0:15:59.760 half past eleven saying please give me x million by 0:15:59.760 --> 0:16:02.480 two twelve o'clock, if we find on the investment trust 0:16:02.520 --> 0:16:05.360 there's no supply that if not dealt with it is 0:16:05.360 --> 0:16:07.680 going to lead to a discount, then that then the 0:16:07.720 --> 0:16:11.000 actual trigger is in our hands and therefore we can 0:16:11.000 --> 0:16:13.240 make certain that we've got the money in the portfolio 0:16:13.320 --> 0:16:15.800 to do a buyback before we actually push the button. 0:16:15.960 --> 0:16:18.600 And where so we have control where in the OIK 0:16:18.720 --> 0:16:20.760 it's the unit holder that has controlled of the timing. 0:16:21.520 --> 0:16:24.480 Right. Okay, so I think we've established what an investment 0:16:24.520 --> 0:16:27.320 trust is. Now we've established how they work. Let's talk 0:16:27.360 --> 0:16:29.840 about where we are in the UK investment trust market 0:16:29.880 --> 0:16:31.720 at the moment. And as you say, the UK investment 0:16:31.720 --> 0:16:34.280 trust market pretty much being the only investment trust market 0:16:34.560 --> 0:16:37.560 at the moment, it's not looking that great. Is We've 0:16:37.560 --> 0:16:40.720 talked about how these wonderful attributes that investment trusts have 0:16:40.880 --> 0:16:43.040 and we've said that over the very long term or 0:16:43.080 --> 0:16:46.400 the medium term, investment trusts have historically outperformed. Are the 0:16:46.480 --> 0:16:50.160 types of collective vehicle in the UK, but right now 0:16:51.080 --> 0:16:52.960 it's not looking good. Now. 0:16:53.640 --> 0:16:56.680 The trust sector has suffered a near death experience that bad. 0:16:56.680 --> 0:16:58.360 I was expecting you to say it was that bad. 0:17:00.000 --> 0:17:02.800 In October, it did feel that this perfect storm of 0:17:02.840 --> 0:17:06.199 events could be enough, particularly the cost disclosure, but we 0:17:06.240 --> 0:17:08.000 had a lot of things all happening at once, and 0:17:08.040 --> 0:17:10.879 it's still not bounced back at The average discount is 0:17:10.880 --> 0:17:13.640 around seventeen eighteen percent, which is pretty well the widest 0:17:13.680 --> 0:17:17.240 ever apart from briefly during the credit crunch. It's definitely 0:17:17.240 --> 0:17:20.240 our touching widest discount of all time in normal conditions. 0:17:20.280 --> 0:17:22.439 And what's caused all that We've had an absolute perfect 0:17:22.440 --> 0:17:24.040 storm and there was a new issue boom in ste 0:17:24.160 --> 0:17:27.000 of twenty twenty twenty twenty one of high yielding trusts 0:17:27.040 --> 0:17:30.439 because as you remember, deposit rates were effectively zero for 0:17:30.600 --> 0:17:32.640 a long period of time and a number of trust 0:17:32.680 --> 0:17:36.600 particularly things like renewables or shipping or whatever, were structured 0:17:36.640 --> 0:17:38.800 with quite a high yield and a way of advisors 0:17:38.840 --> 0:17:42.480 getting their customers at a decent return demand for those 0:17:42.520 --> 0:17:45.840 and there was an enormous amount of issuance and supply, 0:17:46.280 --> 0:17:48.679 but recently with guilts at one point getting up to 0:17:48.720 --> 0:17:51.000 five point four percent. Why would you want to own 0:17:51.000 --> 0:17:53.680 an infrastructure fund yielding six say, when you could get 0:17:53.880 --> 0:17:56.560 in theory risk three, a short dated guilt yielding five 0:17:56.600 --> 0:17:59.480 point four which killed demand for a whole raft of 0:17:59.480 --> 0:18:02.239 investment trust and ken as I said before, if you've 0:18:02.280 --> 0:18:05.560 got limited demand and plenty of supply, share prices will 0:18:05.600 --> 0:18:08.119 just keep falling till the balance of buyers and sellers 0:18:08.119 --> 0:18:12.080 gets into equilibrium. So that was one of the factors too. 0:18:12.280 --> 0:18:14.880 Traditionally the natural buyer of investment trust were the old 0:18:14.880 --> 0:18:17.919 private client stockbrokers, and in the last decade or so 0:18:18.000 --> 0:18:21.280 they've all been merged into these vast wealth management chains 0:18:21.280 --> 0:18:24.359 and we've seen Vestic and rack bones being put together. 0:18:24.440 --> 0:18:26.320 That's going to be one hundred billion pound pot, and 0:18:26.440 --> 0:18:29.200 you're seeing quite a lot of standardization of portfolios simply 0:18:29.240 --> 0:18:32.560 because of the size. The direction of travel is standardization. 0:18:32.720 --> 0:18:35.040 You've got one hundred billion pound pot there. If you 0:18:35.080 --> 0:18:37.760 say that you need one percent in an investment to 0:18:37.800 --> 0:18:40.520 move the needle to make it worthwhile the manager actually 0:18:40.520 --> 0:18:42.760 taking a position, you need a billion pounds worth of 0:18:42.800 --> 0:18:44.560 stock and that would be difficult to achieve even in 0:18:44.640 --> 0:18:48.280 Scottish mortgage, one of the largest investment trusts that natural 0:18:48.320 --> 0:18:52.040 buyer will steadily disappear over the years, and that's an 0:18:52.080 --> 0:18:54.879 ongoing challenge now, particularly more for the larger trust rather 0:18:54.920 --> 0:18:56.879 than the smaller ones, because the smaller ones have been 0:18:56.880 --> 0:18:59.680 off the buy list for some time. Just to running 0:18:59.720 --> 0:19:02.800 down the list. We've had a bizarre situation with the 0:19:02.840 --> 0:19:05.720 cost disclosure and the methodologies, which mean that you end 0:19:05.800 --> 0:19:08.879 up with vastly higher figures theoretical figures for an investment 0:19:08.880 --> 0:19:11.000 trusting you do. For annoy there was at one point, 0:19:11.320 --> 0:19:13.720 as I said before, I run both that the EUT version, 0:19:13.880 --> 0:19:17.560 same managers, same sixty five basis point annual fee. But 0:19:17.640 --> 0:19:20.359 at one point the open ended fund had an OCF 0:19:20.520 --> 0:19:23.919 or the cost disclosure of eighty nine basis points and 0:19:24.000 --> 0:19:26.280 the investment trust three hundred and nine basis points for 0:19:26.359 --> 0:19:29.080 us virtually the same portfolio, and that right the way 0:19:29.119 --> 0:19:31.399 across means that for a number of trusts that come 0:19:31.480 --> 0:19:33.879 up with very high figures and very strange results on 0:19:33.920 --> 0:19:37.720 the methodology become almost unbiable for some investors who have 0:19:37.800 --> 0:19:40.600 to add those costs to their product costs and disclose 0:19:40.640 --> 0:19:42.800