Kepler Trust Intelligence: New Research

RNS Number : 8510J

Securities Trust of Scotland PLC

10 December 2018

 

Securities Trust of Scotland: New research       

10/12/2018     

Highlights:

·     Trading on a much wider discount than its peers, despite comparable performance in recent years

·     A robust yield of 3.8% and a progressive dividend policy, supported by a vigorous board which has done much to build the trust's income credentials

·     A rigorous investment process with a strong focus on risk

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Securities Trust of Scotland (STS) is a broadly diversified global equity income portfolio that aims to deliver a rising level of income and long-term capital growth from a diversified portfolio of equities.

The trust has undergone something of a transformation in recent years, implementing a new progressive dividend policy which allows income to be drawn from capital, and appointing a new manager, ex-Sarasin star Mark Whitehead, who joined Martin Currie as head of income in 2016.

Since he arrived, Mark has built a strong team around himself - including the trust's former lead manager Alan Porter - and put in place a rigorous investment process which sees potential investments put through a series of 'tests' designed to show how they will behave in unpredictable scenarios.

Mark employs an unconstrained, bottom-up, stock picking approach to stock selection, starting with an investable universe of around 3,000 stocks, paying particular attention to credit analysis and stress testing to identify companies that can demonstrate strong free cashflow, which in turn they believe translates to sustainable dividend growth.

Since Mark's appointment in 2016, the trust has produced returns largely in line with its peer group benchmark, and it now offers a solid yield of 3.8% - putting it ahead of the majority of its peers in the AIC Global Equity Income sector in income terms.

At the time of writing, the trust was trading on a discount of -8.4%, well beyond the weighted average discount for the sector (-2.2%) - where the majority of other trusts trade close to par or at a premium (including some which have underperformed STS over recent years)

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