MoneyWeek likes investment trusts. We write about them every week and regular readers know that we have a portfolio of favourites we follow up twice a year.
However, now might be a good time to remember what it is that makes them special. There is the fact that the capital within them is genuinely long term. You can buy and sell your shares in a trust, but (mostly) only to other investors. The capital in the trust is undisturbed by your decisions. This allows fund managers to work free from the worry that investors might throw things off by either pulling lots of money out or pouring lots in (both problems Neil Woodford has suffered from). As long as they have the wherewithal to repay any cash they have borrowed, liquidity – how fast they can sell assets and raise money – isn’t an issue.
Then there is the debt itself. Being able to borrow means you can leverage your returns in good markets, and trusts have a record of doing this pretty well. But the best thing about trusts is their boards, groups of non-executive directors who ensure the company is both fulfilling all its regulatory obligations and operating in the interests of its shareholders. This can seem complicated in the middle of a three-hour meeting dominated by internal control documents and audit reports (I sit on two investment-trust boards).
But at its core it really isn’t. The most important part is making sure that the right fund-management firm and right individual manager have been employed to run the shareholders’ money – and then laying down the parameters within which that manager is permitted to operate. A board then needs the experience, the independence from the manager and – crucially – the guts to fire the manager and hire another if needs be.
And so to poor Neil Woodford. This week, we look at some of the big questions surrounding the suspension of his income fund, and Matthew Partridge analyses one of the stocks giving him trouble. But even since we wrote those pieces more misery has come his way. According to the Financial Times, the board of the Woodford Patient Capital Trust, the investment trust he launched in 2015, has been asking its broker how they might be able to get rid of him.
The answer, of course, is perfectly easily. It will be a bit embarrassing and time-consuming and they will have to change the trust’s name. But Woodford is on a three-month contract, so they could give him notice and have someone with a less trashed reputation and more experience in private equity in place by the autumn. This is not a board that has covered itself in glory recently and a change of manager wouldn’t necessarily make this trust a buy (it’s hard to call Patient Capital a value opportunity), but it would be a nice reminder of why much of the investment-trust sector is.
With that in mind, where Max King looks at the BlackRock Latin American Trust, which trades on an attractive discount at a time when Latin American equities are looking relatively good value. Do read City View for a reminder of why Big Tech makes us nervous. And finally, don’t miss our cover story – for those of you newly enthused by the Woodford saga to DIY your investments, Stephen Connolly suggests ten stocks you can buy and hold for the long term.