Edinburgh Investment Trust (LON:EDIN) has today announced that, after an extensive review of the Company’s investment management arrangements, it has entered into heads of terms to appoint Majedie Asset Management as the Company’s new AIFM.
Glen Suarez, Chairman, The Edinburgh Investment Trust plc, commented: “I am disappointed by another weak result for the Company in today’s Interim Results, extending the period of underperformance to beyond three years. Since 2018 your Board has worked hard to understand the causes of this underperformance, cognisant of the long-term investment objective of this Company and the recent trends in the UK equity market. Following a detailed assessment, thorough review and selection process, the Board has decided to change the Company’s Investment Manager and I am pleased to report that we have chosen Majedie. James de Uphaugh will be the Portfolio Manager and he is a highly experienced active manager with a flexible investment approach. The Board believes that James has the right approach to meet our Company’s objectives of capital appreciation and dividend growth over the long-term.
I wish to take the opportunity to thank Invesco, and Mark Barnett in particular, for their services to the Company and to wish them well for the future.”
James de Uphaugh, CIO of Majedie Asset Management, commented: “Majedie’s long-term, flexible investment approach, incorporating a commitment to Responsible Capitalism backed by fundamental analysis, is well suited to an investment trust that seeks total returns from both income and capital growth. The team here looks forward to working with the Board to build the value of the Company in the years ahead.”
Information on the new Investment Manager
Majedie is an independent equity investment management firm with proven expertise in UK equities.
The Company’s portfolio will be managed by James de Uphaugh supported by Chris Field as the deputy manager. Adopting a total return approach and based on fundamental company research, the managers will build a high conviction portfolio of c.40 positions which they believe will deliver the Company’s twin objectives1 of NAV growth and dividend growth over the long term.
The Board believes that as the Company’s Investment Manager, Majedie will provide the following benefits to the Company’s shareholders:
- UK equity expertise: James de Uphaugh, CIO of Majedie, is responsible for co-managing both the Majedie UK Equity and Majedie UK Focus strategies; combined assets in these strategies amounted to approximately £8.5 billion as at 30 September 2019. James directly manages £3 billion of these assets.
- Total return strategy: Majedie takes a total return approach, where income is one important component rather than the primary driver of investment return, and therefore aligns with the Company’s twin objectives.
- Long-term track record: James has successfully co-managed Majedie’s UK Equity strategy from launch. Majedie has recorded sub-portfolio total returns from 31 December 2006, since when James’ sub-portfolio has outperformed the FTSE All-Share Index by 3.0% net per annum2. The Company’s portfolio will be closely aligned with this sub-portfolio, which has not previously been directly available to retail investors.
- Deep investment resource: James leads a highly experienced investment team of twenty fund managers and analysts, with a collegiate culture. All Majedie employees own equity in the business, encouraging both challenge and collaboration.
- Disciplined investment and oversight processes: The Majedie team conducts rigorous investment analysis with an integrated and holistic approach to ESG issues; James has been a longstanding advocate of Responsible Capitalism. Challenge and debate are encouraged within a structured risk control environment.
- Marketing and promotion: Employee ownership also underpins a genuine focus on client service and Majedie’s experience across the retail and wealth management spheres – which account for over half the firm’s clients by value – will support the marketing and promotion of the Company.
Background to the change of Investment Manager
As detailed in the Interim Results announcement also published today, the Company has experienced another period of weak investment performance. This extends the period of underperformance relative to the Company’s benchmark to over three years and is a major disappointment for the Board as well as our shareholders.
The Board understands that all good conviction fund managers experience periods of underperformance and a focus on long-term results requires shareholders sometimes to bear bouts of relative weakness especially during times when the fund manager’s style is out of favour.
However, your portfolio has suffered from a number of stock specific issues: that is to say large falls in prices of stocks held in the portfolio, the cause of which is specific to each stock rather than resulting from broad market movements. Collectively these stocks have been a significant contributor to the weak performance of the Company and increasingly has led the Board to question the effectiveness of the investment process. That is why the Board intensified its scrutiny of the way that the portfolio is managed more than a year ago, as set out in the Chairman’s statement in the 2019 Report and Accounts.
Since 2018, the Board has examined more closely the approach used to select stocks, as well as the methods and approach to portfolio construction. Then the Board extended its appraisal to cover all aspects of investment oversight. In the spring of 2019, an external investment consultant, Willis Towers Watson, was engaged by the Board to bring an independent perspective, alongside Investec Bank, its financial adviser. In addition, the Board undertook a process to consider alternative managers and has now concluded that it is in the best interests of shareholders to change Investment Manager.
Details on the appointment of Majedie
As set out in the heads of terms signed by the Company and Majedie, Majedie will receive an annual management fee of 0.48% of the market capitalisation of the Company up to £500 million and 0.465% on amounts above £500 million. This represents a significant reduction from the current levels of fees paid to Invesco of 0.55% of market capitalisation.
As a contribution to the costs of the change of Investment Manager, Majedie will waive the management fee payable to it for the aggregate period of three months from its appointment as AIFM.
The investment management agreement shall be terminable by either party serving three months’ notice.
The appointment of Majedie on the terms set out in the heads of terms is conditional on the execution of a new investment management agreement and other contractual documentation. Majedie will seek the required FCA regulatory clearances to act as the Company’s AIFM.
Expected Timing
The Company has provided notice to terminate the appointment of Invesco Fund Managers Limited as the Company’s AIFM, company secretary and administrator. Majedie’s appointment as AIFM is expected to become effective in Q1 2020.
Analyst call
There will be a conference call for analysts at 10.30am this morning, hosted by Glen Suarez, Chairman, Edinburgh Investment Trust and James de Uphaugh, CIO, Majedie Asset Management.
To register for the call, please email Tulchan at [email protected]
1 The investment objectives of the Company are, over the long term, an increase of the Net Asset Value per share in excess of the growth in the FTSE All-Share Index; and growth in dividends per share that at least matches the rate of UK inflation
2 Since 31 December 2006, at inception of sub-portfolio total returns measurement. Source: Majedie/Factset. Data from James’ sub-portfolio within the Majedie UK Equity strategy; to 30 November 2019, GBP, total return (with gross dividends reinvested). Since this return series is only available on a gross basis, a deduction has been made on an annual basis to provide an estimation for costs and charges using the proposed management fee rate, transaction costs and actual OEIC expenses.
