Positive change for the Keystone Investment Trust

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Positive change for the Keystone Investment Trust

Keystone Positive Change (LON: KPC), as it is now known, is a £228m investment trust that until recently had invested in UK equities under the management of Invesco Perpetual. They have since been replaced by Baillie Gifford, which has delivered some amazing returns for investors in the last few years, with the firm given a whole new mandate.

KPC’s twin equally weighted objectives are to generate an NAV total return exceeding the MSCI All Company World Index by at least two percent per annum over rolling five-year periods, while contributing ‘towards a more sustainable and inclusive world by investing in the equities of companies whose products or services make a positive social or environmental impact.’

Making a difference

The fund is now managed by Kate Fox and Lee Qian of Baillie Gifford’s Positive Change team, who aim to back businesses that are meeting social challenges. They will hold a portfolio of 30 to 60 securities selected on a best ideas basis and can invest up to 30% in private companies, although the plan is to allocate between five and ten percent within three years.

Keystone is currently in a transition phase, but Baillie Gifford already operate a similar open-ended fund and initially there is likely to be a high degree of commonality between the two. Its ten largest holdings include: electric car maker Tesla; ASML, which operates in the semiconductor industry; plus healthcare companies Moderna and Illumina.

Between its launch in January 2017 and the end of 2020, the open-ended Baillie Gifford Positive Change Fund returned 35.8% per annum net of fees, compared with 10.8% per annum for the MSCI All Companies World Index. These are impressive numbers that help to explain why the investment trust has moved from a double digit discount to close to NAV since the news of BG’s appointment.

A change will do you good

Baillie Gifford’s Positive Change approach marries the firm’s well-known growth bias with companies that are considered to be addressing one of four global challenges, namely: social inclusion and education; environment and resource needs; healthcare and quality of life; or base of the pyramid, which addresses the need for local income. The idea is that by focusing on businesses that have a sustainable competitive advantage, the strategy should generate attractive long-term returns.

It would be easy to dismiss the growth in environmental, social and governance (ESG) investing as a fad, yet there is a significant demand in this area that reflects the wider awareness of the harm we have done to the planet. Keystone has a unique dual-aspect mandate and Baillie Gifford is well-placed to deliver on it.

Over the next few weeks there will be wholesale changes to the portfolio and shareholder base, but in time it could move to a premium rating and start issuing new shares to meet the demand. The main challenge would be if we see a change in the macro economic environment with higher inflation and interest rates providing a headwind to these sorts of growth stocks.


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