Bankers Investment Trust: July 2024 update

• Alex Crooke is an experienced investor supported by a highly resourced team

• The trust’s dividend increased for the 57th successive year

• Long-term returns have been attractive though the trust hasn’t performed as well as the IA Global Peer group more recently

How it fits in a portfolio

Bankers Investment Trust aims to grow income and capital over the longer term by investing in companies from around the globe. The trust’s focus on cash generation means it typically invests in more established companies from developed regions like the US, Europe and Japan. It also has some exposure to emerging markets, as well as smaller companies, both of which are higher risk.

The trust is invested quite differently from the benchmark, so performance can also be different, while it could offer diversification against other globally focused investments. Blending both value and growth companies, the trust could work alongside other investments which have a more distinct style, or simply provide global diversification to a broader investment portfolio. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to Net Asset Value (NAV).

Manager

Alex Crooke has managed the trust since June 2003. A graduate of Manchester University, Crooke started his career in 1990 as a US equities analyst for Equitable Life Assurance Society. He joined Henderson (now Janus Henderson) in 1994 and is currently Head of Equities – Europe, Middle East, Africa and Asia Pacific.

He has plenty of resource at his disposal and delegates the stock picking to six individual managers at Janus Henderson. Each has a different area of expertise which Crooke carefully blends to create a diversified portfolio.

Process

The trust is split into six regional sleeves: UK, Europe (excluding UK), North America, Japan, Asia Pacific (excluding Japan and China) and China. Each sleeve has its own dedicated manager who is given autonomy to invest where they see fit. While each manager implements their own investment style, what unites them is a focus on companies with strong cash flows.

Crooke is responsible for selecting the underlying managers and choosing how much to invest with each one. He does this based on his view of the economic situation in each area, and which regions he believes can provide sustainable dividend growth. He tends to look at the world with a three to five-year view, so the managers don’t change too often. He’s flexible though and will react quickly in response to major economic events such as Brexit or Covid-19.

Asset allocation has changed dramatically since Crooke took charge in 2003. Back then over 50% of the trust’s assets were allocated to the UK. That figure is now closer to 15%. The trust’s benchmark changed in 2017 from the FTSE All Share to the FTSE World to reflect the change in geographical diversification, although the investment philosophy and process didn’t change.

As at the end of May 2024, North America is the largest sleeve with around 42% invested here, though this is less than the benchmark. In contrast around 17% of the trust is invested in Europe and 15% in the UK. Crooke also has a meaningful position in emerging markets at 8% which adds risk.

Crooke recently announced that he intends to lower the amount of managers he uses from six to four. Instead of having two portfolios that cover the UK and Europe separately he will use one portfolio that covers both regions. He will also do the same with the Asia ex Japan portfolio and China portfolio. This will also reduce the amount of holdings the trust has to approximately 100 companies.

Each of the underlying managers has been active during the trust’s financial year to the end of October 2023. In Europe, manager James Ross bought Heineken. The share price had fallen due to weakening demand in two key markets: Nigeria and Vietnam. Ross believes this will improve over time as will the share price. In the UK, manager David Smith bought Oil and Gas company BP. He believes they have a good strategy to help them diversify away from fossil fuels. Distribution company DCC was also added. Smith thinks he purchased it at a good price given its strong financial position and how resilient it has been.

There were a number of companies sold in the North American portfolio. Manger Jeremiah Buckley sold drinks manufacturer Coca-Cola due to concerns around rising taxes and slowing growth. He also sold cosmetic company Estée Lauder with concerns relating to slowing demand in Asia. In Japan, manager Junichi Inoue sold Japanese company Kao corp and real estate company Katitas.

Crooke has flexibility to utilise gearing (borrowing to invest) which, if used, adds risk. Gearing at the end of May 2024 stood at 6%.

Culture

Bankers Investment Trust was established in 1888 and is a constituent of the FTSE 250 Index. It’s managed by Janus Henderson Investors, a large investment firm with offices all over the world. The firm was formed in 2017 from the merger of two long-established groups – US-based Janus Capital Group and Henderson Global Investors.

They value experience, and so fund managers at the group have on average over two decades of investment experience. Sharing knowledge and ideas between investment teams is an important part of the culture. Managers have the flexibility to tap into the wider group’s resources for ideas and insights, but also have the freedom to do their own research and form their own views without having a ‘house view’ placed on them.

ESG Integration

Janus Henderson aims to be a responsible steward of investors’ money, and ESG is an important part of this. All fund managers have access to ESG scoring models and customised ESG research, but the firm believes ESG considerations should go beyond examining numbers. Company site visits, speaking to workers and questioning company management are just some of the ways fund managers are expected to actively assess a company’s ESG credentials.

Investment teams across Janus Henderson actively engage with the companies they invest in, and the firm’s longstanding Governance & Stewardship team provides centralised support on voting and engagement. The ESG Investment Research team carries out ESG analysis with a consistent methodology across markets with a focus on financial materiality.

When it comes to voting, Janus Henderson has a Proxy Voting Committee, which is responsible for establishing the firm’s position on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives from various business areas, including portfolio management, corporate governance, accounting and compliance. The firm’s full proxy voting history is published annually, although no rationale is provided. There is more detail on voting and engagement, including case studies, in the firm’s annual ESG Company Engagement & Voting Review report and the ESG Quarterly Review – a summary of the firm’s ESG related activities.

Although this trust is not designated a ‘sustainable’ trust, the managers integrate ESG into their process and believe it can be a long-term risk to a company.

Cost

The ongoing annual charge over the trust’s financial year to 31 October 2023 was 0.50%. This is the same as it was the previous year. Investors should refer to the latest annual reports and accounts, and Key Information Document for further details of the risks and charging structure.

If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. The platform charge doesn’t apply if the trust is held in a Fund and Share Account, or in a Junior ISA.

Investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges where applicable.

Performance

Alex Crooke has delivered strong returns since becoming the trust’s manager in July 2003. Over this period, the trust’s share price has grown by 688.46%* versus 680.78% of the AIC Global peer group. Its net asset value (NAV) has also grown by 180.48% over the last 10 years. Remember all investments will rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Over the trust’s last financial year to the end of October 2023, its NAV increased 5.14%. However, the share price marginally fell 0.74% over the same period compared to a 2.77% increase in the AIC Global peer group.

Out of the six managers used by the trust, three of them outperformed their regional benchmarks and 3 underperformed. The trust’s allocation to Asia Pacific (ex Japan and China) performed the worst returning -3.3% compared to a 6.3% gain in the regional benchmark, with Hong Kong names performing poorly due to their relationship with China. This was the case for online retailer JD.com, which was one of the worst performers for this part of the trust. The China portfolio also performed poorly falling 10% compared to a fall of just 1.2% of the benchmark. Several companies that they were expecting to perform well off the back of the Covid re-opening didn’t, after consumers preferred to save their savings rather than spend them. This meant hotel group Shanghai Jinjiang International and airport operator, Guangzhou Baiyun Airport struggled in particular. The US portfolio also marginally underperformed returning 2.2% compared to 4.2% of the benchmark. Postal company UPS was the largest detractor.

On the other hand, the trust’s Japanese portfolio returned 13.9% compared to their regional benchmark which returned 11.2%. The largest contributor was conglomerate Mitsubishi. The European portfolio returned 14.2% compared to 11.7% for the regional benchmark. The trust’s financial companies performed well off the back of rising interest rates. This included Italian bank UniCredit and German insurance company Munich Re. Danish pharmaceutical company Novo Nordisk also performed well off the back of their obesity and diabetes medication. Finally, the UK portfolio returned 6.6% compared to 5.9% for the regional benchmark. Private equity company 3i performed well after they delivered strong growth.

The trust’s dividend per share for 2023 (to the end of October) was 2.56p, 10% higher than the previous year. The trust currently yields 2.21% and trades at a discount of 11.71% however, on average over the last 10 years the trust has traded at a much smaller discount of -3.68%. Please note yields are variable and not a reliable guide to the income you’ll receive in future.