Advertisement

Price is everything when it comes to investing

The biggest driver of long-term returns is the price you pay when you buy, says Merryn Somerset Webb.

The directors of the Schroder UK Growth investment trust recently fired their fund manager. The trust's assets will be moved to Baillie Gifford; a new high-conviction, focused, "best ideas" strategy will be implemented; and the trust will be renamed the Baillie Gifford UK Growth Fund.

This makes sense. A trust's directors are there to look out for the interests of shareholders, which involves ensuring they are getting value from the fund managers they use. Schroders didn't appear to be doing a particularly brilliant job. Despite the trust's name, it has long focused more on value than growth stocks (think Shell and Lloyds), which hasn't been working the trust has underperformed the FTSE All-Share over three and five years and the shares have traded at a nasty discount to net asset value. There is also every reason to think that Baillie Gifford, a genuine growth investor, could do a brilliant job (its record is impressive, as MoneyWeek readers invested in Scottish Mortgage will know) and new managers Iain McCombie and Milena Mileva plan to completely revamp the portfolio. It's hard to find much to criticise, especially as the discount has all but halved since the news broke.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Yet it still makes me feel a tiny bit uneasy. Look back to the accounts that this trust published in April 2000, just as the great technology boom was about to come to a very nasty end. The directors were settling on a change of strategy. Given the "growing importance of high-growth stocks to the UK stockmarket, particularly those in technology-related areas", they concluded that the fund was "too heavily biased towards stocks in out-of-favour, lowly rated companies known as value stocks". That, said the chairman, was to be reversed. This was a horrible decision. The Nasdaq peaked in March, and by the time the directors published their report, the game was already up.

It won't be quite the same this time: valuations aren't super-extreme and Baillie Gifford is a responsible growth investor (you won't find the types of fantasy firms that were popular in late 1999 in its portfolios). However, technology stocks have outperformed hugely, and growth valuations are stretched. That might make anyone who thinks the biggest driver of long-term returns is the price you pay when you buy (that's us) notice the relative value in the healthcare, banking and energy sectors (the very ones Schroders was in). For more on ways into this market, see this week's cover story, while Max King reckons now is exactly the time to buy out-of-favour, lowly valued stocks!

Finally, some news. MoneyWeek is looking for a managing editor to work with John Stepek and me to oversee the commissioning, editing and production of the magazine on a weekly basis as well as to help shape our long-term future. If you are interested, or know someone who should be, please get in touch.

Advertisement
Advertisement

Recommended

If you think now is a good time to buy, look at these investment trusts
Investment trusts

If you think now is a good time to buy, look at these investment trusts

With the latest market slides, an awful lot of assets are beginning to look very cheap indeed. If you are thinking of buying, Merryn Somerset Webb has…
10 Mar 2020
How to build a properly diversified investment trust portfolio
Sponsored

How to build a properly diversified investment trust portfolio

Max King explains how to build a well diversified portfolio using one of our favourite tools – investment trusts.
25 Feb 2020
Why investment trusts are the best vehicle for your money
Sponsored

Why investment trusts are the best vehicle for your money

Max King explains the advantages of investment trusts – sometimes called closed-ended funds – over their open-ended counterparts (or Oeics).
11 Feb 2020
Investment trusts: the Cinderella of investment arrives at the ball
Funds

Investment trusts: the Cinderella of investment arrives at the ball

Investors should look beyond the market noise of a single year and examine the bigger picture. Max King explains what we can learn from 25 years of in…
8 Jan 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020