Change of Investment Management Arrangements

RNS Number : 2202Z

Securities Trust of Scotland PLC

17 September 2020

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This announcement has been authorised for release by the Company's Board of Directors

17 September 2020

Securities Trust of Scotland plc

Change of Investment Management Arrangements

· Securities Trust of Scotland plc to appoint Troy Asset Management Limited as investment manager

· No change to investment objective

· Discount control mechanism to be introduced

Further to the announcement made on 3 June 2020, the Board of Securities Trust of Scotland plc (the "Company") is pleased to announce that, after an extensive review of the Company's investment management arrangements, it has entered into agreements to appoint Troy Asset Management Limited ("Troy") as the investment manager to the Company and PATAC Limited ("PATAC") as the alternative investment fund manager ("AIFM"), company secretary and administrator to the Company.

The Company's core investment objective and policy, being to achieve rising income and long-term capital growth through investment in a balanced portfolio constructed from global equities, will not change.

The Company's portfolio will be managed by James Harries, supported by Tomasz Boniek and the wider Troy team. James will seek to achieve rising income and long term capital growth through patient and disciplined capital allocation, seeking out high quality income by investing in exceptional companies that the fund managers believe are attractively valued, with strong management teams, able to sustain growth at high returns on capital, in a high conviction, low turnover portfolio of approximately 30 to 50 stocks.

The Board believes that the change in investment manager will provide the following benefits to shareholders:

· Access to one of the UK's leading global equity income strategies managed by one of the most experienced UK managers in the global equity income sector, with a strong long term track record demonstrating top quartile performance

· Appointment of an investment manager with a proven track record of managing and growing investment trusts. Since being appointed, Troy has grown the shareholders' funds of Personal Assets Trust plc from £148.9 million to £1.3 billion and the shareholders' funds of Troy Income & Growth plc from £47.4 million to £253.3 million

· Significant contribution to costs by Troy. Troy will waive the management fee payable for a period of twelve months, as well as making a significant ongoing annual contribution to the cost of the company secretarial and administration services to be provided by PATAC

· Introduction of a discount control mechanism will aim to protect shareholders from the Company trading at a discount to net asset value ("NAV") and enable the Company to grow via NAV accretive share issuance when trading at a premium

Introduction of a discount control mechanism

The Board intend to introduce a discount control mechanism under which the Company will aim to ensure, in normal market conditions, that the shares trade consistently close to NAV. The Company will seek to buy back shares if the shares are trading at a discount to their underlying NAV and conversely will look to issue shares if the Company's shares are trading at a premium to their underlying NAV. The aim will be to protect shareholders from the Company trading at a material discount to NAV, whilst also enabling growth through NAV accretive share issuance when the Company is trading at a premium to NAV.

Information on the new investment manager

Troy, established in 2000, is an independent fund management company specialising in generating consistent returns for investors. Troy aims to preserve and build investors' wealth by constructing conservative portfolios for the long term. 

James Harries has an outstanding track record over 15 years of managing global equity income portfolios having been the lead manager for the global equity income strategy at Newton Investment Management since launch (including the BNY Mellon Global Income Fund). James joined Troy in June 2016 and has managed the £388m Trojan Global Income Fund since its launch in November 2016, generating top quartile performance. 

Troy has experience in managing closed-ended funds, having been investment adviser to (now manager of) the £1.3bn Personal Assets Trust plc and manager to the £253m Troy Income & Growth Trust plc since 2009.

Income generation and dividend outlook

The investment manager intends to derive income only from the natural dividend distributions of the underlying portfolio and does not intend to use option writing as part of their income strategy. The proposed strategy seeks to deliver high quality sustainable income from a diversified portfolio of high conviction stocks, aiming to grow the income generated by the portfolio steadily over time.  

In the short term, the revised strategy will deliver a lower level of income than is currently received by the Company but the Board believes that the long-term growth prospects for income will be enhanced.

The Board has decided that future dividend payments will reflect the revenue earned by the portfolio and as a result the dividend payment for the year to 31 March 2021 will be reset to a more sustainable level of at least 5.5p. The board anticipates steady growth in dividends from the revised level.

Gearing

The Company currently has borrowing facilities totalling £25 million in the form of a £10 million revolving credit facility ("RCF") and a £15 million term loan facility.

Troy will take a tactical and flexible approach to utilising these facilities. The RCF in particular is designed to be used in a flexible manner and does not need to be fully drawn down at all times. Troy and the Board will maintain an active dialogue to ensure that gearing is being efficiently used.

Details on the appointment of Troy

Troy will receive an annual management fee of 0.65% of the net assets of the Company up to £750 million, 0.55% of net assets between £750 million and £1 billion and 0.50% above £1 billion.

As a contribution to the costs of the change of investment manager, Troy will waive the management fee payable to it for a period of twelve months from its appointment as investment manager, as well as making a significant ongoing annual contribution to the cost of the company secretarial and administration services to be provided by PATAC.

Following an initial term of three years, the investment management delegation agreement shall be terminable by either party serving six months' notice.

Expected timing

The Company has provided notice to terminate the appointment of Martin Currie Fund Management Limited as the Company's AIFM, company secretary and administrator. PATAC's appointment as AIFM and Troy's appointment as investment manager is expected to become effective in October 2020.

John Evans, Chairman, commented:

"The Directors of Securities Trust of Scotland are delighted to announce the appointment of Troy Asset Management as the new Investment manager of the Company and PATAC as the AIFM and Company Secretary.

The Board's objective throughout the recent search process was to find a team with the resources, record and skills to continue to achieve the Company's objectives. We believe that in PATAC, Troy, James and Tomasz we have an excellent outcome and we look forward to a long and successful working relationship with all of them.

The Board is also pleased to introduce a discount management policy which will ensure that full value in asset terms consistently is available to all shareholders. The efficient use of the discount management policy has allowed the two investment trusts currently managed by Troy to show significant growth through consistent share issuance. The Board is optimistic that such success will be replicated with Securities Trust of Scotland under its new management arrangements."

For further information please contact:

Securities Trust of Scotland plc , via J.P. Morgan Cazenove

John Evans (Chairman)

J.P. Morgan Cazenove  [phone]

William Simmonds

LEI: 549300UZ1Y7PPQYJGE19

Past performance cannot be relied on as a guide to future performance.

 

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