ScotGems, an investment trust focused on smaller companies, plans to list on the London Stock Exchange on 26 June and hopes to raise up to £100m in its initial public offering. The trust will be managed by Stewart Investors, which has made a name for itself running Asian and emerging market funds including Stewart Investors Asia Pacific Leaders (GB0033874768), Stewart Investors Global Emerging Markets Leaders (GB0033874545) and Pacific Assets Trust (PAC). Renowned Asia manager Angus Tulloch, who is due to retire from Stewart Investors in September after 29 years at the company, will be a non-independent director of the trust.
ScotGems will aim for long-term capital growth by investing in companies with a market capitalisation of less than $2.5bn (£1.94bn). It will have a concentrated portfolio of between 20 and 30 holdings, although its single-largest investment cannot exceed 15 per cent of net assets. And it will be diversified across a range of sectors and geographies.
Initially, the trust will be tilted to smaller companies in the Asia Pacific region and emerging markets, which its board believes will continue to expand faster than most developed regions. Stewart Investors says smaller companies across global markets offer attractive long-term investment prospects.
Simon Elliott, head of research at Winterflood, says ScotGems' concentrated portfolio will differentiate it from other global smaller company trusts such as IC Top 100 Fund F&C Global Smaller Companies (FCS), which has nearly 200 holdings.
Investment trusts with a global smaller companies focus
| Trust | Discount/premium to NAV (%) | 1 year share price return (%) | 3 year cumulative share price return (%) | 5 year cumulative share price return (%) | Market cap (£m) | Ongoing charge (%)* |
| Edinburgh Worldwide (EWI) | -6.1 | 42 | 61 | 128 | 302 | 0.92 |
| F&C Global Smaller Companies (FCS) | +1.4 | 29 | 56 | 141 | 748 | 0.75 |
| North Atlantic Smaller Companies (NAS) | -18.0 | 11 | 47 | 186 | 376 | 1.03 |
| Oryx International Growth Fund (OIG) | -19.0 | 12 | 75 | 247 | 102 | 1.99 |
| Average | 24 | 60 | 175 | |||
| MSCI World Small Companies index | 31 | 56 | 127 |
Source: Winterflood as at 7 June 2017, *Association of Investment Companies
"Every fund manager has a different style, with some favouring concentration and others preferring diversification," says Mr Elliott. "A portfolio with 20 to 30 holdings is very concentrated and this differentiates the trust. The trust's tilt towards Asia makes sense as that's Stewart Investors' area of expertise. It will be interesting to see how the trust develops as it grows and the appetite from investors for its offering - particularly as it has a growth rather than income focus."
Five out of the six investment trusts launched since the start of the year have an income focus, which Mr Elliot says underscores the continuing demand for yield.
ScotGems will be managed by Ashish Swarup, who also runs a number of Asian and emerging markets funds including Stewart Investors Asia Pacific (GB0030184088), Stewart Investors Global Emerging Markets (GB0030187438) and Stewart Investors Global Emerging Markets Leaders. The trust's co-lead manager will be Tom Allen, an analyst at Stewart Investors who covers Asia Pacific excluding Japan and all industry sectors, with a focus on smaller companies.
The trust's managers will look to invest in well-run companies with quality characteristics and management teams that operate as long-term stewards of the company. William Salomon, chairman of ScotGems, says this could include a focus on family-owned companies. Stewart Investors says identifying high-quality promoters and businesses at an early stage of development has played a vital role in its ability to generate long-term investment returns for clients.
ScotGems' ongoing charge will be capped at 1.5 per cent of assets, with Stewart Investors receiving an annual management fee of 1 per cent of net assets. The trust will not have a performance fee.
The trust will be able to borrow up to 20 per cent of its net assets, although at present does not intend to use gearing.
