British Empire – moving the goalposts?

Last year ShareSoc published an extensive report on the Annual General Meeting of British Empire Securities and General Trust. This is a long established investment trust which in the long term has achieved good performance figures, but in recent years has not been doing so well. Indeed our report suggested shareholders were becoming restless bearing in mind the comments of some investors at the AGM.

For example, in the year to the 30th September 2013, the Trust achieved a total return of 13.1% compared to an 18.9% increase in the Morningstar Investment Trust Global Growth Index. The Chairman noted however in the 2013 Annual Report that it was difficult to find an index that closely correlates with the Investment Manager’s investment style, so they were changing to the MSCI All Country ex-US Index.

This year the company narrowly managed to beat the new chosen index – 6.8% total return versus 5.1% for the index. The change was a good choice because the index used previously went up by 9.2%!    But they have not completely dropped use of the older index, because they still give the figures for that and another index in the latest Annual Report.  But it seems unlikely that investors in this trust will consider a 6.8% total return as particularly good when many major markets had a relatively good year.  It also seems odd to be using an “ex-US” index when investments in the USA don’t seem to be ruled out by the Trust’s investment policy, although they do seem to have few US investments at present.

Is this a case of the company and its fund manager “gaming” the indices? In addition it’s worth pointing out that the company switched from a management fee with a performance element to one without, partly on the basis that they could not find a good benchmark.

One question shareholders might like to put at the AGM on the 17th December is could the company not devise a composite benchmark that fitted their needs and stick with it?

Another unfortunate aspect is that the AGM is scheduled for 12.00 noon as last year. That means that after the fund manager has given a presentation there may be limited time left before lunch for shareholders to ask questions and debate how the performance of this company can be improved. Last year the meeting did not finish until 1.30 pm when shareholders were getting restive for lunch.

Roger Lawson

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