Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Watch out for managers changing their process
An increasing number of funds and investment trusts are making amendments to how they invest or operate. Investors should therefore keep a close eye on products in their ISA or SIPP (self-invested personal pension) as there is a chance your funds may not stay exactly the same in structure or focus as when you originally made the investment.
Topical examples include Neil Woodford-run Woodford Patient Capital Trust (WPCT) which in late April said it would seek shareholder approval to amend current investment restrictions. Its shares are down 13% since launching in 2015 when it raised £800m.
Woodford Patient Capital wants to lift the maximum investment in unquoted companies to 80% of the fund from 60%; remove a 30% maximum limit on non-UK investments; and enable the fund to own as much as 20% of a single company (was 15%).
It believes this will enable the investment trust to have ‘greater flexibility to capture growth and follow-on investment opportunities’. Shareholders will vote at its AGM on 12 June.
Taking a broader approach
Investors in Polar Capital Global Healthcare Growth & Income Trust (PCGH) will also be asked in June to vote on a fairly significant change to how its fund is run.
This investment collective was launched in 2010 with the intention of being wound up in January 2018. At the time of the launch Polar felt the pharmaceutical sector was being valued as if it was going out of business due to widespread patent expiries, says fund manager Dan Mahony.
‘We said pharma was cheap and investors should look at it. People asked us to make the fund a low risk product, so we didn’t have much (higher risk) biotech in the fund,’ he explains. ‘It was run for widows and orphans.’
The fund did well on the income front, picking up good dividends from large cap pharma stocks. However, Polar says its ‘minimal’ exposure to low yielding biotech stocks has cost the fund ‘considerably’ in terms of capital return.
Where next for Polar?
The fund manager says Polar has now talked to various investors with regards to the future of the fund. They want the same lower risk approach again, yet Mahony says it has now become difficult to run a pure play pharma fund, due to the price pressures faced by the underlying companies.
‘The sector is not valued in the same way it was seven to eight years ago. We believe it is now time to broaden the mandate and invest across more parts of the healthcare sector.’
Mahony says healthcare is going through a period of ‘major structural change’ and he believes that some of the most interesting players in the sector will be technology companies and insurers, rather than simply drug makers.
The proposed switch in investment strategy is likely to see a reduction in the yield from the fund, as it will now have a large cap growth mandate, albeit with a similar risk profile to the current fund.
‘The current portfolio is structured 80% income, 20% growth. The new approach, if approved by shareholders, will be 90% growth and 10% innovation. I define growth as being companies valued at more than $5bn and innovation at less than $5bn,’ says Mahony. The fund will be renamed Polar Capital Global Healthcare Trust,
if everything goes to plan.
Thumbs up to infrastructure opportunity
Changes aren’t restricted to the investment trust space. In the open-ended funds world, shareholders in Premier Global Utilities Income Fund have just voted in favour of expanding its investment remit and changing the name to Premier Global Infrastructure Income Fund (GB0031637282).
Historically the fund focused on areas like energy and water. Now it plans to add investments in assets which may include airports, toll roads, sea ports and hospitals.
Fund manager James Smith is well versed in these markets thanks to his background in utilities and infrastructure when he worked for asset manager Utilico.
‘At Premier, we occasionally see non-utility infrastructure opportunities, but weren’t allowed to take advantage of them in the fund,’ says Smith. ‘Up to now we’ve offered long term, relatively low risk and visible streams of income through utility assets. Something like toll roads give you a similar profile.’
Tweaking the process
Changes to how investment trusts or funds are run can often be more subtle. For example, Martin Currie Asia (MCP) recently said it would enhance its dividend by paying out of capital. That means selling small chunks of its investment portfolio to fund dividends, alongside natural income from its assets.
Another example is JPMorgan American (JAM) which will tweak its portfolio in the future in response to a review of fund manager Garrett Fish’s investment decisions over the past 14 years. The review showed he did well over the longer term, but some gains were eroded by holding onto shares for too long or selling shares disadvantageously.
JP Morgan says the portfolio is likely to be more concentrated in the future and Fish will have a more ruthless approach to underperforming holdings.
Finally, keep an eye on how Alliance Trust (ATST) performs in the near term. It is only a few weeks into its new multi-manager investment strategy which involves eight fund managers each selecting approximately 20 stocks for the portfolio. (DC)