Stand up for your rights
Don’t throw away your right to vote, urges Ian Cowie.
If you care about how your money is managed – and I certainly do – then investment trust shareholders enjoy several important advantages over all other forms of pooled funds. Some that are particularly valuable at present include the right to vote on who serves as directors of our investment trusts and have a say in key decisions.
That can even include continuation votes on whether or not trusts should continue with business as usual or, instead, be wound up with a sale of underlying assets to return proceeds to shareholders, who are the ultimate owners. By contrast, investors in exchange traded funds (ETFs), open-ended investment companies (OEICs) and unit trusts have no such rights to make their voices heard.
So, while investors in ETFs, OEICs and unit trusts can also seek to diminish the risk inherent in stock markets by diversification, in a similar way to investment trusts, they cannot vote. Those equity investors are effectively disenfranchised.
The importance of this apparently technical distinction became apparent earlier this year. An American ‘activist investor’ tried to gain control of seven investment trusts, including one in which I am a shareholder; Edinburgh Worldwide (stock market ticker: EWI).
In each case, the Americans argued they could improve returns by replacing some or all of the existing board of directors, who choose the fund managers and decide on issues including investment strategy. But I was clearly not the only shareholder who felt they failed to make their case because all seven investment trusts voted to reject their initial proposals.
If you care about how your money is managed – and I certainly do – then investment trust shareholders enjoy several important advantages over all other forms of pooled funds. Some that are particularly valuable at present include the right to vote on who serves as directors of our investment trusts and have a say in key decisions.
Ian Cowie
To be specific, the share price of EWI is lower than its net asset value (NAV), as is the case with many investment trusts, and I had no wish to see would-be corporate raiders of any description gain control of valuable underlying assets at a discount. Instead, like most shareholders in EWI, I voted to continue being a beneficial owner of assets that include unlisted shares in Space Exploration Technologies.
SpaceX has more than 7,000 satellites in low earth orbit and, via its subsidiary Starlink, might have the potential to eventually replace every internet services provider on this planet. That depends on technical progress, among other uncertain factors, and currently remains ‘pie in the sky’ but – like other capital growth-seeking EWI shareholders – I have no wish to sell up now.
Evidently, much the same was true for most shareholders in the other six trusts which were targeted. They were Baillie Gifford US Growth (USA), CQS Natural Resources Growth & Income (CYN), The European Smaller Companies Trust (ESCT), Henderson Opportunities Trust (HOT), Herald Investment Trust (HRI) and Keystone Positive Change (KPC).
Bear in mind that had these pooled funds been ETFs, OEICs or unit trusts, all that any corporate raider would need to do is make a take-over bid acceptable to the fund managers or shareholders in the fund management company. In those types of pooled fund, there would be no need to even consult the investors whose money was being managed.
However, it’s only fair to admit that the online platform where I hold my investment trust shares in the tax-efficient wrappers of Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs) made it easy for me to exercise my vote. Not every platform or intermediary, such as some banks or wealth managers, enables shareholders to make our voices heard.
Some investment intermediaries fail to pass on relevant information, others charge administration fees for participation in ballots and a few flatly refuse to let shareholders vote. Any of the above is a major obstacle to shareholder democracy, now that many investments are held in nominee accounts, such as ISAs and SIPPs.
So I believe the Association of Investment Companies (AIC) is right to call for the Companies Act 2006 to be updated to make it mandatory for nominees, including all investment platforms, to pass on voting rights to shareholders. You can sign the AIC’s ‘My share, my vote’ campaign here.
Any investor who does not wish to be asked their opinion could continue to opt out of such communications. But, as in parliamentary democracy, everyone who fails to exercise their vote is effectively demanding to be ignored.
More positively, the seven investment trusts whose shareholders voted to reject the would-be corporate raiders demonstrated that there is substantial interest in shareholder democracy. To return to where we began, whose money is it anyway?
Sign the AIC’s petition calling for a change in the law to force platforms to pass on voting rights and information to shareholders.
Ian Cowie
Ian writes a weekly column about his stock market investments for The Sunday Times, which he began in 2013. He was personal finance editor of The Daily Telegraph for more than 20 years, after joining as a city reporter in 1986. He writes regularly for the AIC.
