Alasdair McKinnon, fund manager of Scottish Investment Trust (SCIN), has denied that he has succumbed to ‘style drift’ after radically overhauling his portfolio, insisting the changes were in line with his contrarian stance.

In last week’s Shares we suggested that the value investor had changed his process by buying expensive defensive stocks amid the market sell-off. Style drift is typically frowned upon in fund management as portfolio managers should arguably stick to their same approach in good and bad times.

McKinnon says he was concerned in January about what might happen if China’s coronavirus-related problems spread to Europe and North America. Despite markets continuing to rally in early February, he sold down retailers and banks for fear that a lockdown would have a considerable negative economic impact and leave companies with little or no income for months, thereby putting a strain on their finances.

He increased the portfolio’s holdings in gold miners and also added utility companies and healthcare stocks. ‘We normally turn over 20% of the portfolio a year; we did roughly the same amount in a couple of weeks in February. The contrarian thing at the time was to protect capital, which is what we’ve tried to do,’ says McKinnon.

The fund manager admits that a lot of money could be made from buying some of the most sold-down stocks such as cruise operators, if you take the view that life will soon return to normal. ‘The only problem is that we don’t know if they will be able to survive between now and when a proper recovery rally happens. The liquidity clock is ticking.’

McKinnon says he wouldn’t consider buying out of favour stocks for Scottish Investment Trust again until there is evidence that coronavirus deaths have peaked and companies are able to quantify the impact of the pandemic on their earnings.

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