The ageing gunslinger rides back into town

One of the advantages of having thousands of funds to choose from is that there is always the chance that you could stumble on a hidden gem. The Independent Investment Trust (IIT) is a good example and shows the benefit of having a free spirited manager who is prepared to back his judgement and put his head above the parapet.

IIT was launched in October 2000 and has been managed throughout by Max Ward, a former partner at Baillie Gifford. Ward is an active stock picker who aims to provide good absolute returns over long periods by investing the majority of the assets in UK and international quoted securities.

Over the last ten years the share price is up 96.25%, well ahead of the 55.95% total return from the FTSE All-Share index. The outperformance has been especially impressive since early 2015, which was when Ward described himself to analysts as an ageing gunslinger that had rediscovered his nerve.

In the last 12 months the fund rose over 33% whereas the FTSE All-Share was down almost 9%. Ward was able to achieve this by getting out of energy and resources stocks in the first quarter of 2015 and by building a significant exposure to the house building sector. A number of IPOs have also made major contributions.

It is a highly concentrated portfolio with the £217m fund divided between 23 assets of which the top 10 account for 60% of the allocation. These include the house builders Crest Nicholson and Redrow; FDM, which provides IT professionals to companies; and IPOs such as On the Beach and Fevertree Drinks.

Another significant holding is Ashtead, an international plant hire business that the manager thinks has good long-term prospects, and the AIM-listed Gamma Communications, which provides voice, data and mobile services to businesses.

His selection of these sorts of high-growth companies has paid off handsomely in the last year and is similar to the high conviction approach taken by the Scottish Mortgage investment trust, which he used to run.

Ward owns 9.5% of the fund’s issued share capital and has recently said that he might want to realise part of his holding in the near future if there is natural demand at an acceptable price. In order to provide enough liquidity the Board has said that they hope to operate a more aggressive share buyback policy for around a month after the AGM on 24^th March.

The chairman, Douglas McDougall, owns a further 15.7% of the shares and his comment in the recent accounts tells you a lot about their current thinking: “We have now settled into a collective state of mind that allows us to be both scared about the market and yet willing to consider individual investment ideas if these appear appropriately valued in a long term context.”

IIT is the complete opposite of a closet tracker and is incredibly good value with ongoing charges of just 0.36%. It will not always outperform to the same extent that it has in the last year, but offers the chance to benefit from an experienced manager who is prepared to back his judgement. Long-term investors who are willing to accept a high degree of volatility may want to take advantage of the recent sell-off.