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I have an abiding memory of Ian Botham marching up the pavilion steps at Lords after bagging a pair in the famous 1981 Ashes series. You could hear a pin drop as, in a show of disgust, the MCC members turned up their noses and blanked him. It was as though they were saying: “Look here, Botham, your maverick manner and cavalier ways aren’t cricket, old boy.”

The MCC has plenty of grumpy old men who frowned at Botham 24 years ago and have moaned about how the game has evolved since. The trouble is that whenever I hear talk of lacklustre investment trust boards, the image of an old boy network akin to the MCC pops into my head. I am sure it is a view that will be scoffed at by many of the impassioned people who live and die for the investment trust cause but, let’s face it, people have talked about the investment trust sector’s cosy image for years, where change is a word to be scorned.

The reaction of Securities Trust of Scotland to the hostile takeover bid in March from Invesco Perpetual income & growth has done little to dispel my notion. STS’s vehement rejection of Pigit’s bid was boringly predictable. It argued that their objectives were not aligned as STS delivered a high yield while Pigit was focused on generating capital growth.

The total return performance of STS has been dire over the past five years compared with its peers. Since 2000, Pigit has grown in value by 90 per cent compared with a rise of just 0.3 per cent by STS. Like a crafty politician, STS sought to absolve itself from any blame. In a counter-proposal, STS offered shareholders shares in a new income trust, a cash exit at 100 per cent of net asset value or a switch into Lowland, the growth investment trust.

STS also argued that it undertook a strategic review last year, yet 18 months ear- lier it announced a negative return of 33 per cent and underperformed its benchmark FTSE All-Share index for the year ended March 31, 2003. Why wait so long?

The board’s offer to shareholders of the option of another growth trust in Lowland appears to have been that of a sulky child who cannot get his own way. It did not go unnoticed. Analysts remarked: “The STS response is an old-school response driven by a board that has demonstrated little ability to get to grips with the problems of the past five years” while the option of Lowland “smacks of sour grapes”.

At the time of writing, the result was still in the balance. But irrespective of the outcome, which was due earlier this week, the move by Pigit has given one investment trust a kick up the backside and for that it should be applauded. With luck, it might spur a few more trusts to get their houses in order if they do not want to fall prey to a hostile bid.

Shareholders should not have to put up with consistently bad performance. Boards have a duty to their investors but they could also provide a much needed fillip to the industry as a whole. One great advantage that investment trusts have over their open-ended counterparts is the very fact that they have independent boards. If a manager is not producing the goods, the board can sack them.

To their credit, several boards have woken up to the fact that poor performance cannot be tolerated.

In the past year, a raft of investment trusts, including Witan, Henderson Electric, TR Property and, more recently, Anglo Overseas, have made moves to improve poor performance by appointing new fund managers.

In his speech at the Directors’ conference, AITC director general Daniel Godfrey suggested that boards which have lost confidence in their manager should consider a merger with a stronger rival if a manager is not up to the task. He has a point. It is the shareholders that count, not the face of the board.

The investment trust industry needs to help itself if it is to win back confidence and, to be fair, many boards are being proactive and decisive. Those who choose to live in the past deserve all the hostility they get.

Paul Farrow is deputy personal finance editor at the Sunday Telegraph


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