Investment trusts that manage the funds of wealthy families allow us humble Joes to run our money with the great and the good.
The best known 'family wealth' investment trust, RIT Capital Partners (LSE: RCP), invests Rothschild money. After many years of excellent performance, RIT Capital is worth £1.4 billion.
Those looking for a similar but lesser-known and potentially more nimble vehicle might consider the £155 million Hansa Trust (LSE: HANA), which reported its 2009 results last week.
51.2% of Hansa's voting shares are owned by two members of the Salomon family, which has roots in banking and finance. The stake is split 50/50 between director William Salomon, a senior figure at Hansa Capital Partners, and his sister.
The attraction of trusts with shareholdings dominated by families is mutually aligned interests. I'm confident William Salomon is batting for Hansa's shareholders, given he is one of the largest.
This rationale holds for any company where directors own lots of shares, but I think blood ties are special. Nobody wants to lose the family silver.
Family values
Keeping it with a family has borne fruit for Hansa's long-term shareholders, though since 2007 the shares have been hammered by the bear market, as detailed in the 2009 results to 31 March 31:
| | 2009 | 2008 |
|---|
| Hansa NAV Total Return | (30.2%) | (10.5%) |
| Benchmark (fixed interest) | 6.7% | 6.8% |
Hansa's performance has improved with the market since then. Its Net Asset Value has risen from 635p to 730p, while the discount to NAV has roughly halved to around 10%. As a result, the more liquid non-voting shares have risen from 490p to 645p.
Most stock market investors have had a torrid two years, but what makes Hansa's showing worse by its own account is the fixed interest-based benchmark: the three year rolling average return of a five-year government bond, plus 2%.
Hansa's rationale for that benchmark is it's investing for real long-term capital appreciation. But over 12 months, equities versus bonds are a crapshoot.
To sensibly make the comparison you have to look over several years at least. Here Hansa fares much better:
| | 5 years | 10 years |
|---|
| Hansa NAV Total Return | 60% | 157% |
| Benchmark (fixed interest) | 34% | 71% |
| FTSE All-Share | -9% | -31% |
Big in Brazil
To diverge so much from the All-Share entails holding markedly different securities -- and nobody could accuse Hansa of being a closet index tracker!
Fully one third of its money is in Ocean Wilsons (LSE: OCN), a Bermuda-based, London-listed mid cap that owns nearly 60% of a Brazilian tug boat operation plus an emerging market investment portfolio.
Ocean Wilsons' shares are up 550% over the past ten years, which explains much of Hansa's performance. But this is not clearcut great stockpicking -- the Salomon family's fund has owned a stake in Ocean Wilsons for decades, and William Salomon is a deputy chairman of Ocean Wilsons and its subsidiary, Wilsons Sons.
Hansa's chairman Alex Hammond-Chambers says management "continues to be excited" by Ocean Wilsons. I don't think all the tug boats in Brazil could drag them from it.
Leaving aside such issues and the obvious risk, holding Ocean Wilsons does diversify away from the UK, which Hansa's managers are very bearish about.
Also, it would be unfair to ignore investment manager John Alexander's stock selection smarts. Strip Ocean Wilsons out and Hansa's NAV still grew 21% over the past five years, compared to a 9% loss for the All-Share index.
Top 10 holdings currently include BG (LSE: BG), BP (LSE: BP), BHP Billiton (LSE: BLT), Hargreaves Services (LSE: HSP) and Italy's ENI, emphasising resources and overseas earnings. Even Hansa's financial holding, HSBC (LSE: HSBA), is famously big in Asia.
Scottish and Southern Electricity (LSE: SSE) and Brit Insurance (LSE: BRE) are UK-centric exceptions, probably designed to add sterling ballast to the portfolio.
Flogging a nearly dead horse
Hansa had another major financial holding – £5.4 million in Lloyds TSB - but the share price's dive during its merger with HBOS turned the position decidedly minor.
In Hansa's results, the chairman explains:
"The rationale for owning [Lloyds] was that, although it had, like most banks, a highly leveraged balance sheet, the bank had - by and large - not made the bad and (at times) highly irresponsible loans and investments other banks had made."
But this changed with the merger:
"The acquisition has crippled the business of Lloyds and it is not impossible that it turns out to be fatal. We will see. The performance of the share price alone should have sent a warning signal to the bank's board of directors. But it appears not to have done; indeed the directors appear to have remained in denial."
William Salomon voted against Lloyds Banking Group's (LSE: LLOY) chairman Sir Victor Blank's re-election as director at the company's AGM, and against the remuneration report. He was out-voted.
Says Hansa's chairman:
"We could, may be we should, just sell it, consigning it to the 'good riddance to bad rubbish' out tray. But we believe that this issue should not be allowed to rest."
Hansa's refusal to fall in line with the chaps is another good sign of its independent thinking. Of course, selling Lloyds before the plunge would have been an even better one!
Trust in Hansa
Hansa's present discount to NAV isn't high for this trust, and the shares have enjoyed a good run recently. This year's relatively generous 18p dividend is a one-off. Hansa's investments look nicely geared to a global recovery, but that event is much debated. I don't see any particular short-term pricing anomaly.
But this isn't a share to hold for the short term. Investors in Hansa should think five years at least, given how its 'special situations'-style portfolio can be expected to fluctuate and the discount widen if investors rediscover fear.
As an active stockpicker, I don't really need the diversification Hansa brings; if I wanted to put 30% of my money into one share like Ocean Wilsons, I'd want to choose it.
But if you usually invest through trackers, a 5-10% investment in Hansa, with annual costs of less than 1%, could improve your returns while slightly diversifying your portfolio -- and put your money in safe hands.
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