Investment Policy
Adopting an agile approach to investing
Investment policy
The investment objective and policy are intended to ensure the Company is able adopt an “agile” approach to investing that balances the flexibility required to navigate market cycles with the ability to exploit compelling investment opportunities from across a broad investment universe.
Whilst the core focus of the investment strategy adopted by the Company is on publicly listed equity securities, it may invest in a range of assets across both public and private markets throughout the world. These assets include both listed and unquoted securities, investments and interests in other investment companies and investment funds (including limited partnerships and offshore funds) as well as bonds (including index-linked securities) and cash as appropriate.
Any single investment in the Company’s portfolio may not exceed 15 percent of the Company’s total assets at the time of the relevant investment (the “Single Investment Limit”).
The Company may invest in other investment companies or funds and may appoint one or more sub-advisors to manage a portion of the portfolio if, in either case, the Board believes that doing so will provide access to specialist knowledge that is expected to enhance returns. The Company will gain exposure to private markets directly and indirectly through investment and interest in other investment companies and investment funds (including limited partnerships and offshore funds). The Company’s investment directly and indirectly in private markets (including through investment companies and investment funds) shall not, in aggregate, exceed 30 percent of the Company’s total assets, calculated at the time of the relevant investment.
The Company will invest no more than 15 percent of its total assets in other closed-ended listed investment companies (including investment trusts).
The Company may also invest up to 50 percent of its total assets in bonds, debt instruments, cash or cash equivalents when the Board believes extraordinary market or economic conditions make equity investment unattractive or while seeking appropriate investment opportunities for the portfolio or to maintain liquidity. The Single Investment Limit does not apply to cash or cash equivalents in such circumstances. In addition, the Company may purchase derivatives for the purposes of efficient portfolio management.
From time to time, when deemed appropriate and only where permitted in accordance with the UK Alternative Fund Managers Regulations 2013, the Company may borrow for investment purposes up to the equivalent of 25 percent of its total assets. By contrast, the Company’s portfolio may from time to time have substantial holdings of debt instruments, cash or short-term deposits.
The value of the shares and any income derived from them can fall as well as rise, and investors may not get back the full value of their investment.
FAQs
The Company expects public equity securities to comprise the majority of assets held by the Trust over time.
Public equity markets offer a diverse investment universe from which a portfolio can be constructed – including stocks listed and operating in many different countries and industries, with very different business models.
However, the investment strategy benefits from significant flexibility to invest in other assets over time.
The Company believes this flexibility is important to the ability of the strategy to navigate market cycles, and in particular to preserve capital when compelling public equity opportunities are scarce.
The Trust can invest in multiple assets, but the Company regards it as a flexible equity strategy rather than a multi-asset strategy in the commonly understood sense of the term.
A multi-asset strategy tends to invest across a broad range of different assets classes on a “permanent” basis, whereas the investment strategy the Trust follows is more focused on public equity markets, but with the flexibility to invest in other asset classes when warranted.
The Company believes that broad equity market indices are likely to generate lower returns in the future than they have in recent decades.
This is because the “forces” that drove strong asset prices are evolving in ways that turn tailwinds into headwinds across many areas, for example demographics.
Whilst the Company is optimistic about the benefits artificial intelligence will bring to economic productivity these benefits must be weighed against the headwinds.
However, the diversify of public equity markets means that even when broad market/index returns are weak, there are usually still plenty of attractive investment opportunities.
The key is to focus on those opportunities rather than regard the composition of broad equity market indices as a “benchmark” that drives portfolio construction.
The Company believes it is impossible to have a view on a company without reflecting on the broad environment for that company, including macroeconomic considerations.
Nevertheless, the investment strategy adopted by the Trust is not “macro”. Macro considerations impact on the Company’s views on the upside/downside risk and opportunity for individual stocks, and on the appropriate level of overall market risk for the strategy. However, “top-down” macro does not drive the strategy.
The key engine for investment returns over the long term is “bottom-up” stock selection, identifying key themes and structuring a portfolio that can generate attractive real returns through multiple different investment scenarios.
Stock picking is the key engine for generating returns. However, the Company rejects the notion that any investment is either “top down” or “bottom up” because all investment ideas are a blend of the two.
It simply isn’t possible in the opinion of the Company to have a view on an individual stock without thinking about the wider environment in which a business operates, including sensitivities to macro considerations.
The Company considers themes in a way that is a little different from some other investors. In the Company’s view, a theme is a collective term for a group of stocks that have some common features.
A thematic perspective on portfolios can be very useful for understanding risk and how different stocks are likely to behave in different scenarios.
This is important to the portfolio construction process adopted by the Trust. The portfolio is built without reference to any market index, and themes provide structure to the way in which the portfolio is constructed.
The key driver of theme identification is the stock selection process. The investment process focuses on identifying companies offering compelling long-term absolute upside, and this is usually a function of “change”.
Positive change within companies is usually associated with wider change in their industry, country or type of company.
The Company focuses substantially on understanding the interaction of change within and external to individual companies.
The best ideas tend naturally to “cluster” into themes. Developing a deeper understanding of those themes can be very helpful for building conviction in individual companies, and vice versa.
The Company believes that risk is the failure to generate real returns (net of inflation) over the long term. Failure to do so would mean the real purchasing power of money invested in the Trust declined over time.
The Company does not believe that short-term volatility of returns is an appropriate measure of risk because sometimes it is necessary to tolerate heightened volatility in returns in pursuit of longer-term real returns.
However, at other times, when broad market valuations are high and it is harder to identify opportunities expected to generate high absolute returns over the medium term, the Company believes it is appropriate to focus more on absolute downside risk.
The approach adopted is long term in nature, and setting the target market risk for the strategy is an explicit part of the investment process adopted.