Keystone Positive Change, Photo by Katya Austin on Unsplash

Keystone Positive Change: Baillie Gifford’s Latest Win

Baillie Gifford’s plan for world domination continues. It has been put forward as the new manager of Keystone Investment Trust, which is set to adopt its ‘Positive Change’ investment philosophy.

Investors seem to like the idea. The shares closed up 9% on the day the news was announced, having at one point been 16% higher.

As usual with manager/mandate switches of this magnitude, shareholder approval is required.

An outline of the plan was announced in December and a circular with full details was published in mid-January.

(Update: Keystone’s shareholders have since voted on the proposals at the trust’s AGM on 10 February 2021 and approved the manager change. The ticker has changed from KIT to KPC and the trust has formally been renamed Keystone Positive Change Investment Trust)

A toe in the water

After looking at several of their trusts over the past year and liking their ultra long-term investment approach, I’ve been meaning to add something run by Baillie Gifford to my portfolio.

And this week, after doing some preliminary research, I bought some shares of Keystone, funding the move by selling part of my holding in Caledonia that I’ve had earmarked for disposal for some time.

Directors buying in

I like to see directors have a reasonable stake in the trusts they run. So it was encouraging to see three of Keystone’s five board members buy more shares on Monday.

  • Karen Brade, Keystone’s non-executive Chairman, bought 5,989 shares at 332p. She only held 2,708 as of 30 September;
  • John Wood bought 5,000 shares at 336p, doubling his holding to 10,000; and
  • William Kendall bought 15,250 shares at 331.5p, adding to the 31,250 he already held.

Overall, the five directors’ cumulative holding rose from 48,100 to 74,300.

That’s more than token buying in my view although a scan of the directors’ bios suggest they aren’t short of a few bob.

Kendall is the longest-serving director, having been on the board since 2002. Wood joined in 2012 and Brade in early 2018 (becoming Chairman in January 2019).

Key stats for Keystone Positive Change

Some of the following data points may be less applicable, due to the manager change, but for completeness here’s my usual summary:

  • New name: Keystone Positive Change Investment Trust
  • Founded: 1954
  • Ticker: KPC (was KIT prior to 11 Feb 2021)
  • Previous manager: James Goldstone (from Apr 2017)
  • Previous management firm: Invesco
  • New managers: Kate Fox and Lee Qian (Baillie Gifford) from 11 Feb 2021
  • 10-year net asset return: +101% (7.2% pa)
  • Share price: 325p
  • Indicated spread: 324p-326p (0.6%)
  • Market cap: £201m
  • Net asset value (NAV): 341p
  • Discount: 5%
  • Costs: 0.55% OCF and 1.1% KID
  • Results released: May (interims) and Dec (finals)
  • Current dividend and yield: 11.2p and 3.4%
  • Dividends paid: Mar, Jun, Sep (interims) and Dec (final)
  • Sector: UK All Companies: 9th out of 12 over 10 years
  • Links: WebsiteAIC page

Price and NAV details as of 7 Dec 2020

What’s changing?

Keystone engaged Stanhope Consulting in September 2020 to explore options for the trust saying:

We concluded that a UK-focused equities mandate did not represent the best longer-term investment opportunity, nor did it make best use of the unique features of the investment trust structure.

Based on our analysis, we believe the best long term opportunities are not geographically constrained and that secular developments in the industry – not least the growing desire among investors for a more responsible and sustainable approach to investment – also pose a threat to the Company’s core position in shareholders’ portfolios.

We have concluded that moving to a Global All-Cap approach under new management, with a commitment to achieving positive impact as well as capital growth would be in the best interests of our shareholders.

Keystone currently sits in the UK All Companies sector.

About 40% of its portfolio consists of FTSE 100 companies with another 40% or so in FTSE 250, Small-Cap, and AIM stocks. Around 15% is invested internationally, mostly in gold miners.

Should the manager change be approved on 10 February, then you would expect nearly all of its 60 or so holdings to be sold within a few days and be replaced with those chosen by Baillie Gifford’s new management team of Kate Fox and Lee Qian.

Out will go the fairly unethical choices of Barrick Gold, BP, Barclays, and British American Tobacco.

In will likely come the likes of Moderna (of COVID vaccine fame), Tesla (the quintessential Marmite stock), MercadoLibre (think Amazon+PayPal for Latin America), and Orsted (a Danish wind-farm company).

Keystone Positive Change will have a global remit so it will probably relocate to the Global AIC sector and sit alongside its Baillie Gifford stablemates Scottish Mortgage and Monks.

As the mandate of the trust is changing dramatically, expect to see a tender offer. This allows those who don’t want to continue holding to sell their shares close to their net asset value.

This happened with Witan Pacific a few months ago when it was transformed into Baillie Gifford China Growth.

In this case, the tender offer was for up to 40% of the company’s shares at a 1% discount to their net asset value. As it transpired, only 26.4% wanted out.

We should find out in mid-January whether Keystone is doing something similar.

A similar set-up to Baillie Gifford Positive Change

Fox and Qian currently manage Baillie Gifford Positive Change, which is an open-ended fund based on the same strategy. It seems likely that Keystone Positive Change will end up with many of the same holdings.

The investment trust version will have a “concentrated portfolio of 30 to 60 of the team’s ‘best ideas’, comprising both listed and unlisted securities”.

The open-ended version looks for “25-50 global high-quality growth companies”, so it’s slightly more concentrated than the trust is likely to be. It had 32 separate holdings as of June 2020.

However, the open-ended version doesn’t invest in unquoted companies (as their illiquid nature doesn’t suit open-ended funds).

With unquoted companies, the trust’s target is a 5-10% allocation within three years, but there’s a maximum allocation at the time of investment of 30% to provide some flexibility on the way there.

Also for liquidity reasons, the open-ended version doesn’t invest in companies valued at less than $1bn whereas Keystone Positive Change will go down to $500m.

The investment trust version will also be able to employ gearing to enhance its returns, up to a maximum of 10% of net assets.

Keystone Positive Change will have the same basic return target as the open-ended fund, namely a “NAV total return exceeding that of the MSCI AC World Index in Sterling terms by at least 2% per annum over rolling five-year periods”.

Given the amazing returns that Baillie Gifford has enjoyed this year, merely beating a global index by two percentage points a year seems a little tame. But 2020 was truly exceptional and we shouldn’t assume anywhere near similar returns in future years.

However, it’s a little unusual to see such an explicit return target for a Baillie Gifford investment trust. They are common across its open-ended funds but I think Keystone Positive Change will be the first Baillie Gifford investment trust to have one.

Changes to the charges

The fee on Keystone Positive Change will be 0.70% on the first £100 million of market capitalisation, 0.65% on the next £150 million, and 0.55% thereafter.

There will be no performance fee, in common with Baillie Gifford’s standard approach.

The trust’s market cap is currently £200m so that will make it marginally more expensive than the 0.5% that Baillie Gifford charges on the open-ended version. However, the open-ended version is currently several times larger, so that’s not entirely surprising.

Baillie Gifford has a good record of reducing its charges as it trusts grow in size and I would hope the same will apply here.

In addition, the management fee for the trust will be waived for the first six months and Baillie Gifford will make “a significant marketing contribution to the repositioning of the Company and will also fund all investor marketing activity undertaken on behalf of the Company during the first year of its management”.

I think that’s fairly standard these days when a new manager takes over. It’s akin to a commercial landlord offering a rent-free period.

The trust’s charges are set to rise at a little from where they are now. The basic management charge paid to Invesco is 0.45% plus a 15% performance fee tied to the FTSE All-Share.

I’d expect the ongoing charge to rise from its current level of 0.55% to around 0.75% but that’s still pretty competitive for a £200m trust.

A drastic drop in the dividend

The level of dividends paid out by Keystone Positive Change is likely to decrease significantly.

The plan is for a transition period of 12 months with the trust using its revenue reserves to support the dividend.

It looks like the annual payout will remain at 11.2p for 2021. If the pattern matches 2020, we’re likely to see quarterly dividends of 2.4p in March, June, and September then a 4.0p final in December.

The net yield on Baillie Gifford Positive Change is 0.3% so that suggests, all else being equal, Keystone’s dividend could drop to around 1p per share come 2022.

I’d expect the quarterly dividend payment structure to disappear as well.

A brief history of Keystone

Keystone was launched in 1954, making it respectably middle-aged as far as investment trusts go.

Perhaps the change of mandate is evidence of some sort of mid-life crisis?

The earliest accounts I could find were from 1975. The trust was managed by SG Warburg at that time and had investments of around £9m. Around 80% consisted of UK stocks, with roughly 10% in both Europe and North America — not too dissimilar from its current make-up.

Management of the trust was taken over by Mercury Asset Management, which was a subsidiary of Warburg’s before striking out on its own. It was known as Mercury Keystone during this time.

Merrill Lynch bought Mercury in 1997 and the trust became Merrill Lynch UK Investment Trust for a couple of years.

Invesco was appointed as the trust’s new manager in January 2003 with the name reverting to Keystone Investment Trust.

From 2003 to 2017, Keystone was managed by Mark Barnett, who of course worked closely with Neil Woodford for many years.

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James Goldstone was appointed manager in April 2017. Goldstone was seen as a rising star at Invesco, similar to Barnett back when he was appointed in 2003.

Over the majority of Invesco’s tenure, from January 2003 to September 2020, Keystone’s performance has actually been pretty good.

Its shares gained 385% and its net asset value 350%. The FTSE All-Share returned 226% over that same period.

However, over the last five years, Keystone’s NAV has trailed the index each year, losing 3% in total while the All-Share gained an admittedly unimpressive 19%.

The share price performance has been even worse, with the discount widening to double-digit levels.

Tough times at Invesco

The last twelve months have not been kind to Invesco.

It lost the mandate for Edinburgh Investment Trust to Majedie while Perpetual Income & Growth was swallowed up by Murray Income. Both were managed by Mark Barnett at the time.

Invesco Income Growth, another of its UK mandates, is being merged into the multi-pronged Invesco Perpetual Select that runs four separate portfolios.

The loss of Keystone will mean Invesco’s roster will shrink from nine trusts to just five (two equity, one multi-asset, and two fixed income) with combined assets of just £1bn.

When you compare this chart of Keystone’s share price against Baillie Gifford Positive Change since it launched in early 2017, it’s not hard to see why the board decided a fresh start is required:

KIT vs BG Positive Change

While it’s a little harsh to compare a UK trust against a global fund over the last few years, Keystone has failed to keep pace with the UK market and the majority of its sector rivals.

Over the last five years, for example, it sits in 11th place out of 12 in its sector, even including Monday’s big jump.

Turning things around

To be fair, the board at Keystone has been trying a few things to improve matters recently.

Expensive debentures with a few months (7.75% interest) and a few years (6.5% interest) left to run were redeemed and replaced with a cheaper revolving credit facility.

A 5 for 1 share split and quarterly dividends were introduced to make the shares (superficially at least) more attractive to retail investors.

The limits on international shares and when shares had to be sold to reduce the trust’s level of gearing were also relaxed a little, giving James Goldstone a little more flexibility when markets were at their most volatile.

Having run out of tinkering options, they’ve now pressed the big red button that is a change of manager.

Lucky 13?

Baillie Gifford is very much going in the opposite direction to Invesco.

Keystone will become its 13th UK investment trust. It also runs 33 open-ended funds and a host of institutional mandates coming to a grand total of £287bn of assets under management.

Baillie Gifford launched US Growth in 2018 and Schiehallion in 2019. It also won mandates of existing trusts that are now known as Baillie Gifford UK Growth, Baillie Gifford European Growth, and Baillie Gifford China Growth.

Over the last twelve months, its average gain across all 12 trusts is 59%, ranging from 14% for Scottish American to 132% for Pacific Horizon.

It’s keen on messages like “Actual investors imagine ‘what if?” not ‘what is'” and “think in decades, not quarters”.

Value investing, as traditionally thought of, this is certainly not.

Keystone looks set to follow the pattern of an investment trust closely following an established open-ended fund, but with the additional flexibility of investing in unquoted companies.

Baillie Gifford’s believes that many firms are choosing to stay away from public markets for as long as possible and that its size and experience in investing in unquoted firms puts in a very strong position to invest the big winners of the next few decades.

Positive returns

Although it’s a couple of months until the change of mandate takes effect, the make-up of the open-ended version should give us a pretty good steer of what to expect.

The money has been absolutely pouring into this fund in 2020, thanks to its great performance to date. It could even end up with ten times the assets it started the year with.

Dec 2017£15m+43%
Dec 2018£63m+5%
Dec 2019£192m+26%
Nov 2020£1.7bn+78%

It’s worth highlighting just how good these returns are.

Both the fund’s 2020 and 3-year record places it fourth out of over 3,000 funds. It’s behind two other Baillie Gifford funds (American and Long Term Global Growth) and Morgan Stanley US Growth in both cases.

Compared to 300+ investment trusts, it’s only behind Pacific Horizon, Baillie Gifford US Growth, Scottish Mortgage, and JPMorgan China Growth & Income in 2020.

On a 3-year basis, only Scottish Mortgage, Allianz Technology, and Pacific Horizon have done better.

The Positive Change strategy

They are four broad categories that the fund invests under:BG Positive Change - 4 categories

The first three are self-explanatory. The fourth is defined as “addressing the needs of the world’s poorest populations”.

So, how do the companies in the Positive Change portfolio meet these objectives? A short video on the fund’s website gives some examples.

For Social Inclusion, it cites ASML who have “contributed towards making computer chips smaller, more powerful, and cheaper … enabling  microelectronic devices to be more accessible to many people across the world.”

Ecolab, a speciality chemicals business, “helps its customers to reduce water consumption, improve energy consumption, and reduce waste production. In 2018, it helped its customers save 190 billion gallons of water.”

Dexcom’s “continuous glucose monitoring devices enable patients and their carers to continuously monitor glucose levels … helping people living with diabetes to live a more normal life.”

Safaricom uses “digital technology to improve access to financial services and is Kenya’s largest mobile phone operator. It has a mobile payment system called M-Pesa … used by millions of people in the country to pay money to their family and friends and pay for goods and services. It’s helped lift 2% of the Kenyan population out of poverty.”

The annual reports of open-ended funds are a little light when it comes to explaining the overall investment approach. But Baillie Gifford Positive Change produces an Impact Report each year that has a lot more detail on each of these four objectives and where each portfolio holding fits in.

The third version, for 2019, can be accessed here. I’m yet to read it in full myself yet but I plan to soon.

There is also a recent video (18 mins) with Kate Fox describing the Baillie Gifford style of looking for big growth potential and how that fits into the positive change investing approach.

The circular due in January should have some more details as well, although I would suspect a lot of it will be more concerned with administrative details with just a few pages on the investing style. That was the case for the circular produced for Baillie Gifford China Growth at least.

The Positive Change portfolio

Here is the full portfolio of the open-ended fund as of June 2020:

Nibe IndustrierSweden3.8
Chr HansenDenmark3.5
Alnylam PharmaUS3.0
Bank RakyatIndonesia2.0
DiscoverySouth Africa1.7
Deere & CoUS1.6
Beyond MeatUS0.9

The top ten account for around 50% of assets and North American stocks for 47%. But there’s an impressive range of countries in the portfolio. Even the UK gets a look in, courtesy of the education and re-training services provided by FDM Group.

Europe represents 27%, Asia 17%, Latin America 4%, and Africa 2%.

One thing that surprised me was the relatively low weighting to China, given the fact that about 20% of its total assets under management are supposedly invested in this country.

Portfolio turnover tends to be fairly low, similar to most Baillie Gifford trusts and funds. It’s expected to be around 20% a year on average for the open-ended fund.

The top ten as of October 2020 looks pretty similar to the table above, with Unicore and Nibe dropping out at the expense of Teladoc and Moderna.

The question of Tesla

Interestingly, Tesla dipped from 9.7% to 8.6% of the portfolio between June and October 2020 despite the fact the Tesla share price increased by 80% over this time.

The Tesla share price has risen by nearly 70% since the end of October so it will be interesting to see the November and December factsheets and what weighting Tesla has then.

Other Baillie Gifford trusts and funds, most recently Monks, have been cutting back on Tesla, saying that now it has grown so big ($600bn+) its future growth potential necessarily has to be less attractive.

I’m happy having it as the largest position in one of my smallest trust holdings, from mid-February anyway, and allowing the good folks at Baillie Gifford to choose the most appropriate position size.

I suspect that the Tesla stake in Keystone Positive Change could turn out to be a little smaller than the open-ended fund, given it will be starting from scratch.

There’s no doubt that Tesla’s mere presence in a portfolio can put off some investors from buying a trust altogether. However, it’s the sixth-largest stock in most global trackers these days, with a 1% position size, so it’s hard to avoid completely.

The Positive Change management team

It’s a young management team, as you might expect. Both Fox and Qian seemed to have joined Baillie Gifford shortly after they graduated, in 2001 and 2012 respectively.

They are advised by two ‘impact analysts’ — Michelle O’Keeffe, who joined Baillie Gifford in 2015 and graduated in 1999, and Ed Whitten, who joined in 2018 and graduated in 2008. It’s not clear if they’ll be advising Keystone Positive Change as well, but it would seem likely.

Baillie Gifford Positive Change appears to be the only public-facing fund that Fox and Qian work on at the moment, so Keystone Positive Change should receive a lot of their attention.

Although Fox is the Baillie Gifford partner responsible for the fund, it was actually Qian who developed the original idea, inspired by his childhood in China and the impact certain business had improving the economy and provider greater access to healthcare and education.

Summing up

I was pleased to see this proposed change from Keystone.

I’ve been looking to add a Baillie Gifford trust, some more technology, and something more planet-friendly to my portfolio. This trust ticks all three boxes.

My Keystone stake is small at the moment but I might add a little bit more in the run-up to the shareholder vote in February, depending on what happens to the share price.

I’d then look to build it up further once we see what its new portfolio looks like.

Witan Pacific saw its discount narrow when it revealed its plans to appoint Baillie Gifford as its manager back in late July. The initial share price move was somewhat less dramatic, however.

It then moved to a small premium after shareholders approved the change in mid-September.

However, the trust ran low on new shares to issue in November and the premium reached 30% at one point, which is pretty much unheard of for a trust that is nearly all invested in quoted equities.

The premium has fallen back a little since, to 18%, but I suspect the directors of Keystone have noted what happened and will make sure it has plenty of firepower to issue more shares if needed.

With a relatively small market cap of £200m, though, it doesn’t take too much buying pressure to make the share price overheat. A similar thing has happened in the past with Lindsell Train Investment Trust.

Until the switch to Baillie Gifford is approved, the share price will also be at the mercy of UK market movements, which could be a blessing or a curse depending on how Brexit is resolved and the market’s view of it.



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19 Replies to “Keystone Positive Change: Baillie Gifford’s Latest Win”

  1. Great write-up. I was about to check it out until I saw their big position in Tesla… thanks but no thanks. I will never trust the judgement of any manager that makes Tesla 9% of their portfolio as this shows only one thing- following momentum and fads. Tesla is one of the biggest bubbles of all time and I don’t care how much it goes up, I don’t want to be in it when it goes down (and sadly I don’t know when the bubble will pop). At least Polar Capital had the good sense to keep TSLA holding to 0.8% of the portfolio so if I wanted to speculate in tech I would go there.

    It’s very easy to show amazing results when 10% of your portfolio is Tesla. I think it’s a lot more impressive to see ITs that did great without investing in crazy hyped up stocks- such as Martin Currie and few others. Having said that I like their other holdings.

  2. Hi M, I did say Tesla was a bit of a marmite stock 🙂

    To be fair to Baillie Gifford, they have been investing in Tesla since about 2013 so I don’t think we can call them bandwagon jumpers.

    Although the Positive Change fund only started in 2017, it had a large position in Tesla before the huge gains this year. It was the fund’s largest at 6.4% in Dec 19, but only 8.6% in Oct 20 despite Tesla rising 338% between those two dates (and a lot more since then of course). That’s partly due to fund rules, of course, which I think individual position sizes to a maximum of 10%.

    And I don’t think it’s a given that the trust will take such a large position when the portfolio gets set up in February next year. It’s something I’ll be watching though.

  3. The mandate wins, the positive reader comments beneath articles on other personal finance websites, I’ve a slight niggle that Baillie Gifford are very fashionable. Fashion, by definition, changes.

    Had a small KIT holding that I (luckily) sold at par to NAV when the share price popped first thing. (Maybe AGT could be a replacement.)

    I think there are 2 large US Value investors on the KIT shareholder register, they’ll be looking to get out on any discount narrowing or tender.

  4. Great write up as ever IT.

    I think this will be a good move for Keystone shareholders. BG Positive Change was one of the first additions to my green portfolio in 2018 and has more than doubled in value over the past two years. I hope it does well for you going forward…I suspect there is much more to come from the likes of Tesla, NIBE and Orsted, all added to my portfolio as stand-alone additions.

  5. Thanks diy. I think your blog was where I first came across this fund. I’m hoping this can be a long-term holding – the management team certainly seem to be a lot younger than me 🙂

    @KW – There’s definitely a fashion risk here although I think BG’s success has been several years in the making. The stocks they own can be volatile so I’ll need to be prepared for it to be a bumpy ride at times. I’m not worried about those large shareholders selling out as that can be accommodated by a tender offer if needed. I’m pretty sure the board will have sounded out major shareholders as part of this process.

  6. Great write up. I am a big fan of Baillie Gifford and have invested in Scottish Mortgage and Monks since 2005. The former is by far my best investment and my initial investment is approaching a 10 bagger. I now hold a few BG Trusts and all of them perform well. They may of course go out of fashion but they are a well managed partnership which has stood the test of time. I had never heard of Keystone before but I have taken a mid size for me position this week. I intend to hold just like BG themselves for a long time. I am happy for each of their Trusts to take decisions on Tesla. It may be a momentum fad stock but they have been holders for a number of years and cannot be accused of jumping on a bandwagon.

  7. Forgive me for getting nostalgic… but I find the Keystone saga fascinating. It doesn’t seem that long ago that Mark Barnett was a fantastic fund manager – doing Neil Woodford skills (as was then) but with more mid-caps. I always found it odd about him running both Perpetual Income & Growth effectively identically.

    It also makes me think two things in particular:
    1) How you have to keep your eye on even very impressive managers to check things aren’t starting to go downhill. To be honest, I don’t know what happened with Barnett – the stories (FT, I think) about Woodford suggested he and his business partner got out of control once off Invesco’s leash.
    2) How the FTSE has declined over the years. The continued presence of big oil, finance and tobacco (I grant you that tobacco is still impressively managed – but pace Nick Train I’m not sure about companies where your product kills your customers) and the lack of innovation that has managed to scale has left us falling behind the US and Asian indices. One can say the same about much of Europe, though I did find the recent Baillie Europe IT manager report quite inspiring.

    Coming back to the present, good luck with this. It seems a sensible move to catch it now, as in the current environment it could also go to a silly premium.

    With my usual cynicism, I find the Positive Change concept a bit faddy Greenwash – marketing teams love ESG-friendly funds for millennials at the moment. Apart from that, it looks like a classic, solid Global BG portfolio. Given that valuations of BG stocks are getting ever sillier, I think a less concentrated approach possibly makes more sense in spreading the risk. There are some outstanding businesses here, and I’d imagine some will continue to grow into their valuations as Amazon has, and some will blow up.

    Sorry for the long post!

  8. IT Investor could I ask you to explain your rationale for investing in Keystone before BG take over in February 2021. If BG are likely to sell existing shareholding’s in UK companies which may be battered by Brexit would it be better to wait until February to invest. I was considering buying the BG Positive Change Fund but instead bought IPO shares in the US which paid off. I still respect the BG philosophy and think they are probably one of the best in the UK. I have a small number of UK company shares at this stage but would probably sell some for to invest in Keystone under BG.

    Thanks for your contribution.

  9. @Tom, yes it’s difficult to know when to bail on past ‘stars’.

    For me, prolonged underperformance of an index and doing noticeably worse than their peers is the main warning sign. You can also look at the quality of companies held and take a view on that. But it’s never easy and very subjective. Woodford and Barnett seemed to have too many disaster stories and rarely seemed to bail.

    I think BG is taking this approach more seriously than most but ‘greenwashing’ is certainly a thing. Andrew at Fund Hunter has pointed out to me that Kingspan, a top 10 holding in the latest factsheet, has been embroiled in the Grenfell inquiry so it will interesting to see how BG responds to that.

    Nick Train is an interesting case right now. His performance has been more volatile than that of Terry Smith over the last decade, with a number of single years where he has underperformed, and 2020 looks like being another one of those. For me, it looks like a blip and I think he should still do well over the next, say, 5 years but others will no doubt disagree.

    @Global Investor, yep happy to expand on that.

    There’s definitely a risk that UK equities could fall if Brexit goes south but then, given the depressed level of UK markets, I’d say there’s also a good chance they could see a bounce once the details are finalised and we can deal with the reality. I’ve no firm view either way, so I’ve just taken a small position in KIT at the moment, maybe a third of what I’d eventually like to end up with, to get the ball rolling.

    I sold an existing position (CLDN) to make this purchase which has a fairly large UK weighting anyway, so I don’t think moving prior to the shareholder vote is increasing my overall exposure that much. Plus the shares are on a 5% discount, which should give me a little downside protection as well, as I suspect they will end up around NAV when BG is fully up and running.

    I’m also a little impatient once I (finally) decide on a plan of action. I’d rather get on with it, rather than having the distraction of constantly watching the share price of what I want to buy and sell and fretting about the precise timing.

  10. Very interesting analysis, as always. I have about 40% in BG investment trusts and funds, so my returns have been very good. Oddly enough though, if you drill down, I only have 1% exposure to Tesla, perhaps because these include MNKS, SAIN and BG Managed which have much less of it than SMT. I like BG’s long-term approach, the private equity element, and that their fees are always very reasonable compared to other active managers.
    I think I will start accumulating some KIT as I currently have nothing with an ESG focus. Personally, I am quite sceptical of the ESG concept (and my largest equity holding is in RIO) but as ESG seems to have increasing popularity it should give a boost in coming years to investments that tick the boxes.
    Reducing the dividend will be a bonus for holdings outside a SIPP or ISA.

  11. A very nice piece of article. Actually, I am an overseas investor and recently start to look at investment trust managed by BG. I find it a bit confusing when I look at the UK tax rule. Based on my desktop research, overseas investors are exempt from UK tax on the capital gain and dividend income from investment trust other than REITS e.g. SMT/MONK by BG. Could I ask if you have any insight into the UK tax rule for overseas investors investing in stock/investment trust listed on LSE? Thanks.

  12. Thanks, James.

    I’m not sure I can help much I’m afraid – I find it hard enough to work out the rules as a UK resident!

    But does seem to suggest non-residents don’t have to pay CGT on shares and similar investments…

    You have to pay tax on gains you make on property and land in the UK even if you’re non-resident for tax purposes. You do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.

    So I would have thought it’s the tax rules where you live that would apply instead. But it sounds like an area where some professional advice might be useful, especially if larger sums are involved.

  13. Very enjoyable read and some useful points from other contributors.
    I too have a little caution to the ‘green’ / esg movement, but I happily took a small satellite position with KIT at a 4% discount. I am impressed with the fund managers in their own right but some of the ‘links’ to their proposed mandate for Positive Change seem a little contrived.
    I think that the fund size will grow quickly to their £400m target – especially as BG will be responsible for the marketing.
    I also like the fact that their ‘bottom end’ size is £500m and unlike the OEIC they can invest in unquoted companies.
    Buy and tuck away.

  14. Thanks Andrew.

    The circular should be out pretty soon so that will hopefully give us a little more detail on how the fund might look under BG.

  15. 1607 Capital Partners, one of the two US-based value investors with 10%+ positions in Keystone, continues to sell down its position in advance of the vote at the AGM next week.–in-company/20210204084417PD50E/

    Was 13.1% prior to the policy change announcement and now down to 11.8%.

    Wells Capital is the other big holder — 12.4% prior to the policy change — but no notice that it has sold down below 12% so far.

  16. Thank you Stewart for this incredibly detailed, comprehensive & high quality article for public information & sharing.

  17. Yes, JJ, a lot of the Baillie Gifford trusts and funds are down heavily since mid-Feb, as are similar trusts like Allianz Technology.

    Keystone hasn’t fallen quite as far as Scottish Mortgage, BG US Growth, Pacific Horizon, and Edinburgh Worlwide, but it’s still down 18% since 11 Feb, the day after BG took over management.

    The open-ended version is only down 12% over the same timeframe, but I think the timing of its valuation point means its price doesn’t reflect most of Friday’s changes quite yet.

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