The Value and Income Trust is split into property and equities, run by two teams, who generate income by taking a long view, holding on to stocks and building on them for several years.
OLIM Investment Managers is a boutique operation set up in 1986 by Angela Lascelles and Lord Matthew Oakeshott, the Liberal Democrat life peer and former treasury spokesman. Outspoken and often controversial, Oakeshott resigned from politics earlier this year after he criticised the government’s ’project Merlin’ deal with faltering British banks.
OLIM’s first client was the Value and Income Trust, which the firm immediately reshaped when it took over its management in 1986. Before then, it was known as Stewart Enterprise Investment.
“We turned it into a vehicle to invest in direct property and British equities, particularly high yielding,” Lascelles says. At first, the trust’s assets were small, but Oakeshott says they have grown steadily over the years. “It was about £8m when we took over. After a lot of growth we are now at about £140m”.
The Value and Income Trust is run with a split investment approach, with two-thirds invested in equities and one-third in property. But because of the wishes of OLIM’s owners, the structure is undergoing a process of reform.
Oakeshott adds: “We had run the [OLIM] business ourselves for a number of years, but in 2000 we sold it to Close Brothers. Recently, Close Brothers has decided property is not a core area of interest for them, so I have agreed terms to buy out the property side [of the management contract].” (Investment trusts continues below)
Oakeshott says the process of the management split is awaiting FSA approval. His side of the trust’s management will be known as OLIM Property. Otherwise, little else will change. “Life will go on, we will all still work in the same place, it is just that the investments will be split,” he adds.
Management responsibilities have been split between Lascelles and Oakeshott for the past couple of years. Lascelles deals solely with equities, backed by a team of two equity specialists, while Oakeshott deals solely with property, assisted by one property specialist.
Lascelles says: “On the equity side, we all come from a background of liking value and income, and these are the key principles for the fund. We also place a great deal of emphasis on growing the dividend.”
She says that during the tough market conditions of the past few months, and also in the aftermath of the crisis in 2008, there were buying opportunities in firms that were undervalued. “In the past two or three months and a few times in the past, there has been a fantastic opportunity to buy overlooked growth companies, usually in middle and smaller-sized companies,” she says.
Some of their favoured stocks are allowed to reach high percentages of the overall portfolio. While this would probably raise eyebrows in most board rooms, because shareholders in the Value and Income Trust are long term, this type of decision was always supported, according to Lascelles. “The board, and importantly the shareholders, understand our policy,” she adds. Investments are never brought in to the portfolio in such large proportions in the beginning, but if it is a stock they identify as one with potential for long-term growth, they can add further to it.
Although all of the holdings are UK quoted firms, many of them are a global market play because they operate internationally.
The fund is overweight in industrials for a global growth play. “Rotork is a mid-sized engineering company, a world leader in its niche market and operates in developing countries with high growth prospects,” she says. “This is a typical company which we buy during distressed market conditions.”
When considering domestic stocks, it is placed much more defensively, steering clear of financials in particular. Indeed, the Trust only has one bank holding, which is HSBC. Coincidentally, perhaps, this avoids the British banks associated with the Merlin project that Oakeshott is so critical of.
Tesco is a favoured new stock with Lascelles. She adds: “We are defensive in the UK, being overweight in utilities and pharmaceuticals. In food retailing, where we recently saw Warren Buffet decide Tesco is a good pick, this is a company we also chose.”
Oakeshott takes a similar approach to Lascelles when managing the property side of the portfolio. “Ideally, all investment is about buying from the frightened and selling to the greedy,” he says. “We tend to be defensive, but with our average property holding being more than 14 years we receive good quality income. An important aspect is that we have built up a proportion of property which is index linked, which is now about a third of the property portfolio.”
”We tend to be defensive, but with our average property holding being more than 14 years we receive good quality income”
While all of the property is based in Britain, Oakeshott says most of them are located in “smaller, more prosperous towns”. While the portfolio has few offices, most tenants are retail chains such as WH Smiths and Poundland. There are also banks and financial services firms, with the remainder being a section of leisure properties, including a caravan site.
Oakeshott adds: “Our best investment ever was a retail warehouse in Northern Ireland outside Belfast that we bought during the troubles. We eventually sold it to Sainsbury’s a few years ago [after the country stabilised] and made about six times our money. It was burned down a couple of times but what we identified is that the British tax-payer does the insurance.”