The likely effects to markets of a ‘Yes’ result are also being hotly debated with concerns regarding currency, tax and liabilities creating huge swathes of uncertainty.
UK investors too have voiced concern about holdings with a strong connection to Scotland such as banks and asset managers, and investment trusts domiciled north of the border are also in the firing line.
Back in June 59 per cent of respondents to an FE Trustnet poll said they had been put off buying a fund or trust run by a firm based in Scotland. With the chance of Scottish independence perhaps greater now than it has been all year, those who have kept hold of their “Scottish” trusts now may be starting to feel the heat.
There are around 40 investment trusts based in Scotland including three of the largest and most popular: Scottish Mortgage, Murray International and Alliance Trust. For those concerned about the implications of a ‘Yes’ vote for markets, here are some alternatives based outside of Scotland.
Alliance Trust
One potential alternative to the £3.3bn Alliance Trust is the Witan Trust, according to Numis’ Charles Cade.
The £1.3bn trust has been managed by Andrew Bell since April 2010, over which time it has returned around 15 percentage points more than Alliance Trust.
According to FE Analytics, it has returned 73.82 per cent compared to 49.44 per cent. The average return in the IT Global sector over this period was 42.64 per cent.
Performance of trusts, sector and index since April 2010
Source: FE Analytics
Cade says Alliance Trust’s performance has improved of late but Bell’s multi-manager approach gives exposure to some of the best global managers.
“Witan is now a multi-manager vehicle but has low fees,” he said. “You get a good range of managers with Andrew Bell on top of that, being fairly active in changing the exposure and buying direct private equity exposure to add some value around the sides.”
When Bell (pictured) took over, the trust allocated money to trackers, but he then switched these for active funds. His current largest holdings include 12.5 per cent with Veritas [Global], 11.9 per cent with Lindsell Train [UK] and 10.1 per cent with Artemis [UK].
While both trusts have a majority of their exposure in developed market equities, Witan has around 40 per cent to UK companies while Alliance Trust has just 21.8 per cent.
Witan is currently on a discount of 5.8 per cent having narrowed over the past year from 13 per cent. The Witan Investment Trust has ongoing charges, inclusive of performance fee, of 1.15 per cent and is 10 per cent geared.
Scottish Mortgage
This £3.3bn trust is number one in the IT Global sector over the past five years and the second best performer over 10 years.
It has a strong bias toward technology stocks with an emphasis on ‘disruptive’ companies evident in high weightings to the likes of Amazon, Baidu, Google Tencent and Apple.
The trust is managed by star manager James Anderson with Tom Slater as his deputy. Cade says the managers’ unique style makes it difficult to find a replacement trust.
“There is nothing quite like Scottish Mortgage, it really is quite distinct,” he said.
He says the low concentration of high growth stocks makes it a risky enough trust regardless of where it is domiciled.
Oriel Securities’ Iain Scouller says the £1bn Monk’s investment trust – which is also run by Baillie Gifford – is a possible alternative however. While run by the same group it is not domiciled in Scotland.
He adds that it is on a much wider discount than Scottish Mortgage – 13.6 per cent compared to 1.7 per cent – and should fare better in more difficult market conditions due to its defensive style.
Monks has had a hard time of late on a relative basis, not helped by fast rising markets and a widening discount. FE data shows that Scottish Mortgage has returned an impressive 89.01 per cent over the period compared to 22.26 per cent from Monks.
Performance of trusts and sector over 3yrs
Source: FE Analytics
However, the trust may be of interest to investors who want exposure to Baillie Gifford's highly-rated equities team; especially if they think markets are set for a more difficult periods in the coming months and years.
Monks, which is headed-up by the experienced Gerald Smith, has a much higher weighting to developed markets than Scottish Mortgage; with North America, the UK and Europe making up the bulk of the portfolio. Tom Walsh was brought in as deputy last year.
Monks is one of the cheapest trusts around, with a performance fee of 0.57 per cent. It is 1 per cent geared.
Murray International
This £1.3bn global income trust, which is managed by Bruce Stout and his team at Aberdeen, has seen its premium fall in the past three weeks from 9 per cent to 6.2 per cent as the vote draws near. Scouller says the trust could be replaced by the £230m Brunner Investment Trust due to its top income paying credentials.
“Brunner is one of the highest yielding international trusts, with an attractive yield of close to 3 per cent. The rate of dividend growth has been consistent, with the trust delivering 42 years of uninterrupted dividend growth,” he said.
Like most Aberdeen-run portfolios, Murray International has a propensity to high quality, cash generative companies with strong balance sheets.
Top-10 holdings include BAT, Roche, Unilever and Royal Dutch Shell. Brunner holds similar names at the top of its portfolio, but has significantly less in companies with direct and indirect exposure to emerging markets.
Managed by Lucy Macdonald since July 2005, who is chief investment officer of global equities at Allianz, and co-manager Jeremy Thomas since 2010, the trust has an experienced team, Scouller says.
“The managers say they have responded to the low volatility in equity markets by reducing the number of investments and focusing on the highest conviction ideas,” he said.
“This has increased the active share to circa 75 per cent of the portfolio and reduced the number of stocks held to 85 from 94 six months ago.”
Over the past three years the trust has returned 59.39 per cent compared to 42.64 per cent from the IT Global sector average. Murray International, which sits in the IT Global Equity Income sector, has returned 42.97 per cent over the same period. Its high weighting to emerging markets resulted in a very poor 2013, though performance has improved of late.
Performance of trusts and sector over 3yrs
Source: FE Analytics
Brunner is currently on a discount of 11.6 per cent and is 16 per cent geared. Ongoing charges are 0.77 per cent.
“We believe one factor influencing the discount is the sizeable Brunner family stake. The company buy back shares for cancellation to minimise discount volatility,” Scouller said.
