Index funds force change at Smith&Williamson North American Trust

Indices boardSmith & Williamson Investment Management, based in London and with £14 billion under management, has reduced the holdings in its North American Trust and acknowledges pressure from the wide use of index funds by advisers.

Reducing the stock list by almost 50%, the firm expects this to help the trust to deliver an above-benchmark investment return that justifies its active fees in light of the wider use of index funds and exchange-traded funds (ETFs).

The trust has also appointed Robert Royle as lead manager. He was co-lead manager with Lady Tana Focke who has stepped back from the role until she formally announces her retirement.

Royle says: “There is widespread use of index funds and ETF’s by advisers, and we understand that as active managers we have got to be able to justify charging active fees by beating the index over the medium- to long-term.”

He adds that the long-term track record of the fund since Focke started managing it in 1997 has been “impressive”, but it is recognised that the trust has been less successful more recently.

A key finding of a review was that the trust has too many “filler stocks”, which though expected to add stability to the portfolio, in reality were detracting from performance.

A process of reducing the fund from 90 stocks to 40-50 stocks, without a material impact the risk profile, has begun.

 Nick Hodgson, partner and head of marketing and sales, says:  “We have made these changes as we recognise the increased use of ETF’s and index funds by advisers and wealth managers. We are confident that this more focused process and implementation should enable the fund to deliver attractive returns ahead of the index, the FTSE World US Index in our case, over the medium- to long-term.”

He adds: “We have also been working on Tana’s succession plan for some time, starting with Rob’s appointment as assistant fund manager in December 2008, and his promotion to joint-fund manager last year.”

Focke will continue to lead on sectors including healthcare, oils and retail.

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