Research from Collins Stewart last week looked at the total investment by boards and managers into their investment trusts and concluded there was still a lack of shareholdings by many, which was disappointing.
In its report Skin in the game – the good the bad and the absent, Collins Stewart, said: “We continue to believe that personal share ownership sends a powerful message to both existing and potential investors”.
This message, Collins Stewart argued, is one of an alignment of interests, so in situations where managers or board members do not have a large shareholding of their trust investors are “entitled to ask why there is not greater commitment”.
Contrary to popular belief, however, it turns out high-conviction investment by fund managers into their own investment trust has little to no positive correlation to performance.
Here at Portfolio Adviser, we looked at the top five investment trusts in terms of size of manager shareholding, as reported by Collins Stewart.
The results were illuminating in that none of the top five shareholding managers seemed to perform markedly better than the sector average, and in some instances performed markedly worse.
We used Net Asset Value (Nav) to measure performance because it gives an idea of how the manager has performed without any supply or demand influence, which is not true of share price performance.
We also noted the discount/premium for each fund because it gives an idea of demand for the fund, with a higher-than-sector-average discount illustrating low demand.
All performance figures are from the Association of Investment Companies to the 9 January.
Top five funds in terms of manager shareholdings
1. Fund: North Atlantic Smaller Companies, managed by Christopher Mills since 1984. He has £31.2m invested in it. The fund is trading on a 32% discount compared to the North American Smaller Companies Sector average of a 21.2% discount.
Performance: Net Asset Value (Nav) total return of 99.1 over one year, compared to 98.1 from the sector; 146.1 over three years, compared to 150.5 from the sector; and 120.1 over five years compared to 120.7 from the sector.
2. Fund: HgCapital, managed by Ian Armitage since 1994 and by Nic Humphries alongside him since 2001. The management team has £24.1m invested in it. It is trading at a 13.3% discount compared to the Private Equity Sector average of 35.2% discount.
Performance: Nav total return over one year 104.1, compared to 102.7 from the sector; 129.1 over three years compared to 95.6 from the sector; and 170.1 over five years compared to 86.2 from the sector.
3. Fund: Better Capital, launched in December 2009 so only has one year performance data available. Manager Jon Moulton has £23.7m invested in it. It is trading at a 10.2% premium compared to the Private Equity Sector average of 35.2% discount.
Performance: Nav total return over one year of 110 compared to the sector average of 102.7.
4. Fund: Caledonia, run by Will Wyatt, Jamie Cayzer-Colvin and Charles Cayzer with a total of £20.6m invested in it. The fund is trading at a 24% discount compared to the Global Growth Sector average of a 1.5% premium.
Performance: Nav total return over one year of 85.2, compared to the sector average of 91.9; 122.6 over three years, compared to 142.7 from the sector and 94.5 compared to 114.9 from sector.
5. Fund: Aberforth Smaller Companies, has a five-strong management team with a total of £16.8m invested in it. Three of the team have been there since 1990 and two since 2001. It is trading at a 19.6% discount compared to a sector average of 19.4% discount.
Performance: Nav total return of 88 over one year, compared to 91 from the sector; 155.5 over three years compared to 189.2 from sector, 85.8 over five years compared to 103.7 from the sector.
Does this result surprise you, or was the relationship between high-conviction manager shareholding and performance always tenuous? Let us know what you think below.
