No full disclosure of Inv Trust assets.

Judesman

I have a significant holding of British Assets Investment Trust. The Company pays a good dividend but the accounts do not disclose all the underlying investments. The 50 largest investments comprising 68% of the trust appear in the accounts but there are another 338 investments that are not declared. Last year I wrote to the company and they sent me a list of all the holdings and it was clear that considerable rationalisation needed to be looked at. This is now being done but this year the Company Secretary of Foreign and Colonial (the managers) has refused to provide me with a list of all the underlying investments. I find this extraordinary and surely as a shareholder I am entitled to know.


Any thoughts please?

gadgetmind

You may like to ask on the Motley Foot board for ITs and UTs as there are many experts on there.

Judesman

Many thanks. I will try that.

jimjames

Attend the AGM and ask there. That will then force a public reason for why it isn't being included in the published details

Judesman

It isn't really practical for me to travel to London for the AGM but the reason I am being given is that the whole vast portfolio is under review. I don't think that is a reason for non-disclosure.

bowlhead99

Don't shoot the messenger, but they're not required to publish this. They publish financial statements in line with generally accepted UK accounting standards and Ernst & Young have given an opinion to say the numbers are legit.

Obviously the managers can decide how much information - above and beyond the bare minimum requirement that the company publishes for its owners, prospective owners, and other stakeholders - should disclose elsewhere in its report. There is no general requirement that a company with a half billion investment portfolio needs to tell its owners what is in it down to the last thousand pounds. The owners (shareholders) appoint a manager/director to manage and direct their company and while you can vote in favour or against the board's actions or composition from time to time your role as a shareholder is not to micromanage.

So, if they report that 9.5% of the portfolio is composed of 210 separate bond positions which are not individually big enough to make it into the top 50, you can decide if that gives you enough information to stay invested. If they were tell you that actually one of those positions is £11,872.38 of some old loan note in ABC Ltd, is that going to change your attitude to the half billion portfolio and whether your investment in British Assets Trust continues to be suitable for your needs?

Sure, you may think they are overdiversified - although as they are not an open ended company they don't have the inefficiencies or expense of buying and selling a little bit of each of these hundreds of positions each time some investor joins or leaves. It won't cost them much to maintain some small old legacy position although it may be more efficient in the long term to have a clear out.

You could suggest that to them - as no doubt you have, and they have alluded to doing a review anyway - but giving you the fine details of every single position is not something that makes for exciting reading for most investors. Some of the main themes of what is actually going on would perhaps get lost in the noise if too much information provided, which is why investment trusts try to strike a balance when doing their reporting.

On the equities side they have, per the accounts, almost 130 investments outside the top 50, adding up to a bit over a hundred million pounds. So, a bit less than 1m in each on average and none of them are over 3m (half a percent of your portfolio) or they would have already been shown in the top 50. They do give you a sector allocation for the equities holdings in total so you can gauge whether that exposure is something aligned to your goals as an investor.

this year the Company Secretary of Foreign and Colonial (the managers) has refused to provide me with a list of all the underlying investments. I find this extraordinary and surely as a shareholder I am entitled to know.

Essentially, I don't believe there is a requirement for them to give you all the figures down to the last pound - this is why accounting standards (including special statements of recommended practice for certain sectors, like investment trusts) were developed, to make sure stakeholders get a clear view of what is going on without being overly burdensome for the directors and managers of companies.

The question is what in practice are you going to do with the information when you find out what particular underlying company is represented by£50k out of 488,000k ? I suggest very little.

The top 10 holdings are 28% of the portfolio. The next 40 holdings are another 40% and are fully disclosed as to name, sector, valuation etc. They then have 20% made up of a widely diversified pool of equities and 10% made up of a widely diversified pool of bonds. They give you a sector allocation for the equities and also summarise the geographical exposure. You have the overall performance information and the audited financial statments through the years to see if, as an investment product, the sum of its parts has historically performed in line with your expectations and needs during good times and bad.

I think you can decide from all that whether you have enough information to continue to invest. I appreciate some people may prefer to drill down to top 60 or top 70 investments or more but a line should be drawn somewhere. Some trusts might only have 50 investments total; by contrast this one has 50 investments plus a side pool of 100+ diversified equities and 200+ bonds. Without seeing the fine detail, that high level split can allow you to make an investment decision, in terms of to which trusts or other investments you should allocate your cash.

General allocations between sectors, geographies and asset classes make much more difference to your overall investment result than what is the 102nd largest equity holding within one of your investment trusts that you presumably hold in a portfolio with other assets as part of some life game plan.

Like I said, don't shoot the messenger; you did say "Any thoughts please?"

Judesman

Thank you very much for that, very much appreciated and just what I wanted to hear (or perhaps not in this case). You have obviously had a good trawl through the accounts and I have to say that my main concern with Investment Trusts is the level of gearing and consistency of dividend supported by a good revenue reserve. When, last year at my request, the company sent me a spread sheet of their total investments I was amazed at the number of very small irrelevant holdings so I was pleased to read that a reduction in the number of holdings has been instigated. I would have thought that with a relatively new Investment Manager this should be an absolute priority.


A start has been made but I would have liked to compare last years full list with this years because non-disclosure of 32% of the underlying investments seems quite a lot to me. Anyway if you consider that there is no obligation to publish this that is the end of the matter and I always have the option to sell and re-invest in any one of the well managed ITs out there if I am not happy with the management. It is interesting to see that the performance fell short of the benchmark this year. One to watch I think.


Thank you very much for your comprehensive reply.

Judesman

This is taken from a Morningstar research paper and has very kindly been drawn to my attention. I will draw this to the attention of the British Assets Trust and see if there is a further response.


Best Practice


[FONT=Morningstar 1,Morningstar][FONT=Morningstar 1,Morningstar]The Association of Investment Companies (AIC) encourages investment companies to disclose sufficient information to ensure shareholders can understand the risk/reward balance to which they are exposed (AIC Code of Corporate Governance October 2010). Indeed, they go one step further and suggest that a fund’s board should ensure a full portfolio listing is made available at least annually. Nonetheless, there are still many funds where shareholders don’t know the detail of exactly how their money is invested more frequently than once a year. Granted, there are natural exclusions here, such as private equity funds, which are dealing in unlisted companies. But for those funds investing in mainstream assets—and here we mean equities and bonds—to us there really is no excuse not to disclose holdings on a basis that’s more frequent than just annually.










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bowlhead99

I guess it depends whether you take "full portfolio list at least annually", literally.

If all you ever got was top 10 holdings covering 30% via monthly fact sheets, the AIC would quite rightly say you should give a full listing once a year or the investors are lost in the darkas to what the other 70% actually is.

But to me, a "full listing" that is 50 entries long, after which there is no other investment to mention having over half a perfect of the portfolio, and you know the balance of the portfolio is split:
"10%:a 200 position bond portfolio with nothing individually material, providing useful diversification";
"20%:a 130 position equities portfolio with nothing individually material, providing useful diversification";
- then I think that approximates to a reasonably full listing and would not be too disgruntled.

Of course, no reason why you couldn't ask them to explain, that's what investor relations teams are for. I just wouldn't bother, for myself.

Judesman

F & C has registered this as a formal complaint now so I will see what happens. Having last years list I would still like to see how the re-organisation is being dealt with and we are talking about £152m of investments here.


Thank you for your input.

Judesman

I am pleased to say that I have now been provided with the full portfolio as at 30.09.13. My comments have been noted and the Board is giving consideration as to how the portfolio should be presented in future.


Thank you for your contributions.