British Assets Trust (BSET) plans to remove F&C as its manager and replace it with BlackRock, and change its investment policy to become a wealth preservation fund. Shareholders will be asked to vote on the proposals at a meeting in January 2015, and the trust's largest shareholder, Axa Investment Managers, which holds about 15 per cent of the shares, has already said it will vote in favour of the proposals.
British Assets Trust currently aims for a total return in excess of a composite index - 80 per cent FTSE All-Share Index and 20 per cent FTSE World (ex UK) - by mainly investing in equities. It also aims for a progressive dividend. The trust has underperformed its hybrid benchmark over one, three and five years, as well as its peer sector average over three and five years.
Its new objective would be to preserve capital in real terms and to grow the dividend over the medium term at least in line with inflation, targeting a total portfolio return of UK consumer price index (CPI) inflation plus 4 per cent a year, over a five- to seven-year cycle.
It would invest around 40 per cent of its portfolio in UK equity income stocks, and 60 per cent in assets including developed and emerging markets equities, high-yield loans, government bonds and commodities. It would use a value-based approach and get exposure via funds such as BlackRock's iShares exchange traded funds, as well as using hedging strategies both with regard to assets and foreign-exchange exposure.
A number of analysts have welcomed the proposed changes. "British Assets is attempting to couple the low volatility, capital preservation characteristics of multi-asset vehicles with a growing dividend supported by revenue reserves," comments Winterflood. "This allows the fund greater dividend certainty and provides it with an advantage over an equivalent open-ended fund."
If BlackRock is appointed as manager, within six months of this British Assets would offer its shareholders a tender offer for a minimum of 20 per cent of its ordinary shares in issue at a 2 per cent discount to net asset value (NAV) per share. The trust's board would also try to move its share rating towards a zero discount. British Assets currently trades on a 5.14 per cent discount to NAV.
If BlackRock is appointed manager, British Assets Trust will be managed by Adam Ryan, head of the BlackRock Diversified Strategies Team and manager of BlackRock Dynamic Diversified Growth Fund (GB00B1577C37). This fund is in the first quartile of the IMA Mixed Investment 20%-60% Shares sector over the past year, but in the fourth quartile over three and five years.
There would be no change in the management fee arrangements, and British Assets Trust would bear all costs associated with the portfolio transition while BlackRock would pay the other costs. The trust currently has an ongoing charge of 0.7 per cent.