It’s far too early to make any judgement on performance as the new manager has only been behind the wheel for a month
Thursday 11 Mar 2021 Author: Yoosof Farah

It may be early days but so far investment trust Keystone Positive Change (KPC) doesn’t seem to have benefited from the magic touch of new manager Baillie Gifford.

The asset management firm behind Scottish Mortgage (SMT) hasn’t had the instant impact on the trust in the same way it has with Witan Pacific, which has jumped more than 25% in price since Baillie Gifford became manager and renamed it Baillie Gifford China Growth Trust (BGCG) last September.

Keystone’s share price has dropped from 339p to 285p since Baillie Gifford became manager on 11 February. In net asset value terms, the trust is down around 13.2% in the past month.

Shareholders may understandably be disappointed with the trust’s performance since Baillie Gifford took over, but investors need to have patience.

As a fund manager focused solely on growth stocks, its style of investing is out of favour at the moment as investors chase cyclical and value stocks which could see a big recovery in earnings this year and next, even if they don’t have some of the same structural growth drivers as companies in sectors like technology and healthcare which Baillie Gifford favours.

Baillie Gifford’s stated aim is to find companies that can double their earnings in five years, the minimum timeframe investors should be looking to hold investments. In the case of Keystone Positive Change, it looks for businesses which can also ‘contribute to a more sustainable and inclusive world’.

The trust’s performance mirrors the near 10% fall in its open-ended mutual fund counterpart Baillie Gifford Positive Change (BYVGKV5), which is also affected by the same style issues and ranks in the lowest quartile for fund performance so far in 2021.

However, the Keystone trust has various important differences from the mutual fund. As it has a close-ended structure, it doesn’t need to be able to sell assets quickly, unlike an open-ended fund which might need to meet investor redemptions if large numbers sell out of the fund. This enables it to invest in unquoted stocks.

Manager Lee Qian says: ‘For private companies we look forward to investing in businesses and providing direct primary capital towards companies, helping them to grow, invest in innovation and hire more people.

‘In addition, with the investment trust we are able to deploy gearing. That is to borrow a small amount of money and use it to invest in companies. As long as the long-term investment return is higher than the cost of borrowing, this should help enhance investment returns for shareholders in the trust.’

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