No-frills trust with exciting ideas

A bottle of Fever Tree tonic water
Fever-Tree: a tonic for a refreshingly different fund

Few investors would buy a fund without first looking at its historic performance, but sometimes you know you are going to like it long before you see the numbers. So it is with the Independent Investment Trust (LSE: IIT), a £350m trust managed by Max Ward.

In 2000, aged 50, Ward retired from Baillie Gifford, having managed Scottish Mortgage Trust for 11 years. But his retirement was from corporate life, not fund management. He raised £50m from 250 friends, family and contacts to set up Independent, putting in £5m himself alongside £5m from Douglas McDougall, Baillie Gifford’s former managing partner and prospective chairman of the new trust. These two now own nearly 13 million shares, worth £90m (23% of the total), while the two other non-executive directors own nearly a million shares each.

A frugally run fund

The trust is self-managed and frugally run. Costs, including Ward’s moderate salary, are barely 0.2% of assets. Nothing is spent on marketing, there are no fact sheets and the annual report is in black and white, with no pictures.

Ward operates out of a modest Edinburgh office, runs no other funds and has no interest in expanding Independent by issuing new shares. The more sanctimonious of corporate-governance guidelines are disregarded: Ward is one of four directors, all of whom have been there since inception.

The portfolio is focused, with just 36 holdings, the largest of which – tonic maker Fever-Tree and white-collar automation specialist Blue Prism – each comprise nearly 10% of the fund. Both firms were bought at flotation as respectively 2% and 0.75% holdings and have since multiplied in value, with some profit realised along the way. Despite a long-term perspective, annual portfolio turnover is still 20%. “I would like it to be lower but I keep finding exciting new ideas,” says Ward.

Grab your chance to buy

The trust is in the “global” sector, but is almost entirely invested in the UK. “We wanted to maintain the maximum possible flexibility,” says Ward. “In the past, we have had 40% of the portfolio outside the UK, but with so many opportunities in the UK, there is no need to go overseas.” Very little is in the FTSE 100; “it is much harder to add value in the large caps because they are well researched and so more efficiently priced”.

Ward’s process is simple: “we are suckers for a good story”. For example, a major factor in his enthusiasm for Blue Prism is that its chairman, Jason Kingdon, a serial entrepreneur, bought more shares in the flotation and hasn’t sold any since. Meanwhile, 15% of the trust is still in house builders, on the basis of a long-term shortage of housing, huge barriers to entry, and companies having learned to manage the cycle.

Independent’s five-year return of 175% is nearly twice the sector average, twice that of global equities and 3.5 times that of the All-Share. It is beaten over five years (but not over shorter periods) by Ward’s former fund, Scottish Mortgage, while Lindsell Train, a £140m trust that is also run as if it was a private investment vehicle, is ahead over one and three years.

As to the future, “I have never in my career seen such an array of really good companies coming to the market, due in part to the huge opportunities created by technological progress.” Ward plans to continue “for as long as I am able”, noting that “it is not time consuming to be a fund manager when you don’t have to spend lots of time on internal meetings or marketing”.

The bad news is that the shares habitually trade at a hefty premium to net asset value (NAV). The good news is that February’s market setback has brought both the NAV and the premium down a bit. This looks as good a chance to climb aboard as you are likely to get.