Three ways to use an investment trust
Investment trusts are a type of fund. They are a way of pooling your money in one place – but at the...
Warren Buffett, one of the most profitable investors of all time, once said: “If you are not willing to own a stock for ten years, do not even think about owning it for 10 minutes.”
But finding a business that will stand the test of time in this way is easier said than done – after all, a lot can happen in a decade and a successful company today, may not be competitive a few years down the line. Whatever happened to Kodak and Nokia, for example?
While these companies may be difficult to spot, it is not impossible. We asked four Elite Rated managers for examples of companies they have bought and held for a decade for more.
We bought shares in Hiscox, the insurance provider and underwriter for Lloyd’s of London, when it came to the market in the 1990s. When we bought it, it was a small Lloyds based insurer and now it is about to enter the FTSE 100 – the index of the UK’s 100 largest companies. It had – and still has – real underwriting disciplines, which include not chasing business down – if you under-price business in insurance, it is a recipe for losing a great deal.
Although Hiscox is now a very large global insurer, these disciplines are still in place. The company also pays a growing dividend and sometimes a special dividend if it has excess earnings – another good discipline to have. Hiscox also stays away from more commodity lines of business and instead prefers to operate in some specialist niche markets, such as fine art insurance, where there is value added through its expert knowledge.
CLS Holdings is a British commercial property investment business. It owns a portfolio of primarily office property, which is split roughly 50% in the UK (mainly in the Greater London area), 30% in Germany and 20% in France. The business specialises in acquiring and improving affordable office space in decentralised and suburban locations.
Sten Mortstedt, the founder, and his family still own about half of the company and we like the alignment of interest. His timing of the property cycle has been uncanny, with sales of over 40% of the portfolio in 2005/6 (ahead of the global financial crisis) and, more recently, with the sale of a large development site in Vauxhall, having successfully achieved a complex multi-use plan permission for the site.
One stock I have held since it floated in 2007 is Hargreaves Lansdown, the Bristol-based financial services company. The shares floated at 160p and currently trade at 1864p, with shareholders having received lots of dividends in the meantime. I liked the company’s strong market position, the cash generative nature of its business model, its conservative finances and the fact that management would continue to own a large stake in the business after the float. Where possible, I look for this sort of alignment between shareholders and the management team.
It is a company that has not rested on its laurels in the meantime, and this is one of the reasons I have continued to hold the stock. Back in 2007 it had first mover advantage and since then it has continued to invest in its platform to keep itself ahead of the game. Its market position remains strong with decent growth prospects.”
Transurban, is a road operator company that manages and develops high quality urban toll roads in Australia and North America. Toll roads have limited economic sensitivity and pricing linked to inflation or better. In a global context, the company has long-term concessions in countries with low political or regulatory risk and robust legal systems. Company management and its board understand the need to balance medium-term cash flows with long-term value creation.
The company is currently driving a number of the key infrastructure projects in Australia. Toll road projects in Melbourne, Sydney and Brisbane will add significant capacity to congested corridors and should lead to faster, safer and more reliable trips for people and goods. In turn this should lead to higher earnings power for Transurban investors. Despite periods of challenge, Transurban has been a stock to own through the cycle.