The board said in a statement to the stock exchange today it has served a notice of termination on Schroder Unit Trusts Limited and entered terms to appoint Baillie Gifford as the trust’s new alternative investment fund manager (AIFM), company secretary and administrator.
The Schroder UK Growth Fund has returned 14.1% over three years against the FTSE All-Share’s 16.5%, according to FE. It has been trading at a discount of 12.77%.
The board said: “It is disappointing to note that the company’s long-term investment performance is considerably below the board’s expectation and has lagged the benchmark since inception. Further, despite its ongoing share buyback policy, the company has struggled with a persistent and wide discount to NAV.
“Accordingly, the board has concluded that, in order to provide the best investment outcome for existing investors and to position the company to attract new investors, it should make the change to implement a new ‘best ideas’ investment approach managed by Baillie Gifford, an established manager of investment trusts with a long-term track record in achieving capital growth from UK equities.”
A statement from Schroders said: “We are naturally disappointed with the decision taken by the board and will continue to work with them to ensure a smooth transition during the notice period.
“Schroders has a strong, wide range of investment trusts covering UK and Asian equities and real estate. We remain committed to this part of the business and continue to see this as an area of future growth.”
Baillie Gifford’s appointment is conditional on completion of a new investment management agreement and obtaining regulatory clearance which is due to be completed no later than the expiry of the notice of termination.
The board said although the company’s investment objective and policy will not change, McCombie and Mileva will realign the portfolio to invest in a portfolio of about 40 stocks, which will offer shareholders a UK-focused high-growth investment proposition.
It added the investment portfolio will be constructed on a stock-picking, growth orientated, long-term basis and be highly differentiated relative to the benchmark and to the peer group of all-cap UK equity investment trusts.
McCombie joined Baillie Gifford in 1994 and joined the UK equity team in 1999 before becoming a partner in 2005 and chief of investment staff in 2013. He is also co-manager of the Baillie Gifford Managed fund.
Mileva joined Baillie Gifford in 2009 and has been an Investment Manager in the UK Equity Team since 2012.
The board will apply to change the company’s name and ticker to Baillie Gifford UK Growth Fund plc and BGUK, respectively, and its registered office address will change.
Baillie Gifford will be paid an annual management fee of 0.5% on the value of the company’s NAV. It has agreed to waive its £732,000 management fee, which is six months’ worth based on the current NAV. The company shall bear all the remaining costs associated with the proposals.
What next for Matthews?
Matthews, who joined Schroders in 2013 from Jupiter, has been lead portfolio manager of Schroder UK Growth fund since October 2014.
He was removed from the Schroders UK Alpha Plus fund in March when Bill Casey and Nick Kissack took over the £983m fund after joining Schroders from Janus Henderson in February.
At the time, Schroders said the decision was taken to allow Matthews to focus solely on the UK Growth fund.
Schroders said: “Philip Matthews is a portfolio manager within our UK and European equities business which currently manages £51.1bn AUM. We have a depth of talent within our UK equities business and a wide range of investment styles ensuring a strong offering to our clients.”
Darius McDermott, managing director at Chelsea Financial Services, said the move showed strong governance from the trust’s board, but was a “punchy” move to invest heavily in
He said: “The track record of the trust not only under Matthews but also previous managers has been pretty poor.
“Baillie Gifford are excellent fund managers but they are growth managers which has been the prominent style for the last eight or nine years and Matthews’ style was very much a value tilted, so it is a punchy call to say [growth] will be dominant for the next 10 years.”