Independent Investment Trust plc (LSE: IIT)
Independent Investment Trust plc (LSE: IIT) is an investment trust with a long-term horizon. Mr Maxwell Ward (Also the Managing Director) manages the fund. The investment trust mainly invests in the equity market of the United Kingdom alongside global securities. It also invests in index futures. The investment basket encompasses a broad range of sectors which includes the likes of industrial services; consumer services; retail; leisure; business services; travel; housing services; telecommunications; energy; utilities; insurance; technology; renewable energy.
Financial Highlights (H1 FY 2019, £ in thousands)
(Source: Interim Result, Investment trust Website)
Independent Investment Trust plc reported interim results for the six months ending May 31, 2019. In the reported period, the investment trust produced a net asset value total return of 8.1 per cent. The total returns notionally attributable to the FTSE (The Financial Times Stock Exchange) All-Share Index and the FTSE World Index were 4.9 per cent and 2.8 per cent, respectively. As on May 31, 2019, the net asset value per share increased in percentage terms 6.5 per cent versus net asset value per share as on November 30, 2018. In value terms net asset value per share augmented to 572.3 pence (May 31, 2019) versus 537.4 pence on November 30, 2018. Share price of 556 pence as on May 31, 2019, increased 4.7 per cent versus share price of 531 pence as on November 30, 2018. It resulted in the discount to net asset value to rise from 1.2 per cent on November 30, 2018, to 2.8 per cent in May 31, 2019. Overall revenue earnings per share for the six months ending May 31, 2019, came in at 8.08 pence versus the year-ago period revenue earnings per share of 5.80 pence. It indicates an upside of 39.3 per cent. Also, the investment trust announced an interim dividend of 3 pence to be paid on August 23, 2019. The investment trust’s net cash position increased from 8.5 per cent on November 30, 2018, to 14 per cent on May 31, 2019. However, management announced a slight softening in the position to 12 per cent on July 11, 2019.
Portfolio Distribution of Independent Investment Trust plc - April 30, 2019
Independent Investment Trust plc’s investment portfolio as on April 30, 2019, reflected top 10 holdings representing 55 per cent of total portfolio value. The most significant sector exposures were housebuilding, technology, travel and leisure.
Independent Investment Trust plc’s exposure to the housebuilding space witnessed a slight improvement year over year during the six months ending May 31, 2019. Overall in this space investment value of holdings increased to £45.5 million as on May 31, 2019, versus £41.3 million as on November 30, 2018. The uptick came from pockets of opportunity in planning cum housing regulations giving more prominent players ample competitive advantage. The focus on more significant names in this space has been the rule followed by Independent Investment Trust plc for its investments. As per investment trust filings, specific scrips which occupies a prominent position in the investment portfolio includes Fevertree Drinks (LSE: FEVR); Blue Prism (LSE: PRSM); Ashtead Group plc (LSE: AHT); and Redrow plc (LSE: RDW).
The growth was marginal due to the management’s apprehension about the financial outcome of Brexit. However, the misapprehension of the management was allayed by broader market stabilization leading to better returns for the investment trust's portfolio. Along with this, benign land prices also contributed to the uptick.
On the other hand, Independent Investment Trust plc’s exposure to the business service stocks during the six months ending May 31, 2019, were lukewarm. Management was prudent at taking advantage to dispose of its holdings in Midwich Group (LSE: MIDW) during recovery in its share prices. Similarly, management raked in profits from another scrip LoopUp (LSE: LOOP). However, on the flip side, the investment trust’s holdings in Eddie Stobart Logistics plc (LSE: ESL) performed poorly affecting the value of the total portfolio. However, the Eddie Stobart Logistics plc scrip is expected to perform better in the medium-term horizon as per management expectation. In a nutshell during the six months ending May 31, 2019, the worth of the investment trust’s holdings in the business services space reduced to £25.5 million as on May 31, 2019, from £29.1 million as on November 30, 2018.
Next, in the period under dissection, the investment trust's holdings in the retail space was bogged down owing to unfavourable macro conditions. During the six months ending May 31, 2019, the value of holdings in the retail space reduced to £14.5 million as on May 31, 2019, from holdings worth £16.8 million at November 30, 2018. In this space, Independent Investment Trust plc’s most considerable speculation was at Motorpoint Group plc (LSE: MOTR). Here also during the six months ending May 31, 2019, share prices fell due to the outlook over the used car market. Also, Independent Investment Trust plc’s holdings in Quiz (LSE: QUIZ) burned a hole in the pocket of the investment trust while disposing of its shares.
Mr Max Ward the Fund Manager
Independent Investment Trust plc’s focus on a small bunch of stocks (numbering less than forty) has been the forte of Max Ward. The seventy-year-old fund manager set up the Independent Investment Trust plc’s equity fund in the year 2000. Earlier Max Ward used to manage another fund called Scottish Mortgage for more than a decade. Before that, he was at the helm of the equity department of the United Kingdom branch of Baillie Gifford for over two decades.
Independent Investment Trust plc Share Price Performance
Daily Price Chart (as on July 31, 2019), before the market close. (Source: Thomson Reuters)
On July 31, 2019, at the time of writing (before the market close, GMT 02:45 PM), Independent Investment Trust plc shares were trading at GBX 526, up by 0.38 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 763.22/ GBX 452.70. The outstanding market capitalisation was around GBP 289.42 million.
Why Should we Pick this Fund?
Independent Investment Trust plc as per the latest publicly available data has an investment corpus of approximately £350 million in assets. Although the investment trust tracks worldwide markets, the lion’s share of its investments (more than nine tenths) is invested in the United Kingdom. Of the rest of its fund, a meagre two per cent of the value is spread across the continents of Europe; North America, and Asia. The remaining three per cent is cash holdings with investment trust.
A Pinch Of Salt
In this Brexit backdrop the predominant United Kingdom focused investment corpus carries the country-specific risk. It would be less for peers of Independent Investment Trust plc who have a globally diversified revenue model. It is because a falling pound could have a substantial impact on the businesses that are earning the majority of their revenue from the United Kingdom market. However, falling Pound could be beneficial for those companies who are earning the majority of their revenues from abroad. That's why analysts are a bit bullish on The Financial Times Stock Exchange (FTSE) 100, and FTSE 250 companies as their majority of revenue come from across the global.
Bonus Point for Independent Investment Trust plc
Also, for investors having an eye for detail, the fund manager's annual compensation is at a just £200,000 (FY 2018), making the expense ratio low, the small expense rate is more comparable with passive exchange-traded funds rather than actively managed funds. The rate of growth is also low in this respect compared to its peers. It keeps the investment fund's overall charges at a low level of 0.25 per cent only.
Investors with an eye for profit can pick up Independent Investment Trust plc owing to the concentrated portfolio and small value of asset size of the close ended investment fund. Its admirable track record of returns also is another unique selling point in the current market scenario. Given Boris Johnson's outlook over Brexit, the Great Britain Pound has already shed half of its weight in July 2019. Overall in FY 2019 till date, the United Kingdom currency has lost almost five per cent of its value.
In such a scenario given the management of Independent Investment Trust plc’s clear view to keep the value of the fund corpus below €500 million makes managing it easy. Keeping the size small is a smart move on the part of the investment trust as it helps it to bypass a host of costly and time-consuming, European Union regulations. Lastly with a small investment corpus, the investment trust’s number of floating units are also less making them more valued to an investor.
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