This is seven months away – an age in investment terms – yet there has been a tremendous amount written in the past week or so about what the consequences would be for investors in Scottish-based investment trusts if the “Yes” voters won.
Truly uncertain
The battlegrounds for the vote over Scotland’s future independence include its future finances, what currency they will use and what financial union, if any, they will be a part of.
At the moment it is all about politics with either side of the vote producing polls and statistics to back up their own particular view. But as the Scottish rugby coach Scott Johnson (an Aussie) said recently: “I use statistics like a drunk uses a lamp-post – for support rather than illumination.”
That is to say, the results of any poll this far out are not to be believed worth the paper they are written on.
So what should investors be thinking about now, ahead of a Yes/No vote in September?
According to a Winterflood paper published on 5 February, £21bn is invested across 41 listed investment trusts incorporated in Scotland (of 279 including those in England & Wales and the Channel Islands). Of these, 27 are managed mostly there, mostly in Dundee and Edinburgh, while the balance are managed north of the border and incorporated in England. Monks, the £3bn global equity fund is probably the best known of these.
Lack of clarity
Simon Elliott, head of research at Winterflood, summed up the position for investors clearly when he wrote in the February note: “The potential impact of independence on investment trusts registered in Scotland is unclear at present.”
This is a popular opinion, but investors would still be daft to leave it until 16 September to work out what the impact of the independence vote is on their trusts.
As ever, there are a number of opinions on a number of issues that Elliott points out:
Financial regulation:
Investment trusts are currently regulated according to AIFM (Alternative Investment Fund Manager) directives and ultimately by the FCA. An independent Scotland is likely to introduce its own financial regulator with potentially higher costs for the trusts.
Future changes in taxation:
UK domiciled trusts are taxed according to HMRC rules around corporation tax, stamp duty and VAT. All of these will need to be reconsidered depending on the rules laid down by an independent Scotland’s ‘Revenue & Customs’.
Investment trust status:
An investment trust is subject to the UK Companies Act so an equivalent Scottish Companies Act would need to be established and trust managers would have to heed to potentially different rules on paying dividends from capital, buying back shares and so on.
Investment management:
Current UK law will govern the contract between a trust’s board and the investment manager. Independence may be mean the terms and conditions of these contracts will need to be reviewed.
Change in incorporation:
As has been widely reported, the £460m Finsbury Growth & Income Trust has said that relocating a trust to England will cost “hundreds of thousands of pounds”. While it is not something that needs to be considered now, any such necessary cost will hit the trust’s bottom line straight away.
Elliott concludes: “There is no need for investors or boards of investment trusts based in Scotland to take any action at present. However, this does not negate an early consideration of the potential issues and possible responses in the eventuality of a “Yes” vote.”
But whatever the polls say, it is hugely unlikely that there will be anything other than a “No” vote so keep calm and carry on…
