EDINBURGH INVESTMENT TRUST is backing Britain with a ‘double discount’ offer – with the promise of more and better to come
At the end of next month, the management team in charge of the Edinburgh investment fund are due to quietly celebrate three years at the helm of the £1.1 billion listed fund. It will be a job well done – so far – with the promise of more and better to come.
“The numbers in absolute and relative terms will look pretty good,” predicts James de Uphaugh who, along with Chris Field, took the reins after the board fired director Mark Barnett of investment firm Invesco. Since the pair began to reshuffle the portfolio in the spring of 2020 – amid the pandemic – it has generated surprising returns investing in UK equities.
Since early April 2020, shareholders have been rewarded with total returns of 86% – a combination of income and capital. To put that into perspective, the average UK equity income investment trust returned 64% and the FTSE All-Share Index gained 60%.
It wasn’t all easy. Although the trust generates an attractive annual income of around 3.6%, the board sanctioned a reduction in dividends during the year until the end of March 2022. De Uphaugh describes it as a “recalibration” and insists that dividend income is now growing within the ‘waiting envelope’. In the current fiscal year, the two quarterly payments reported so far – both 6.4 pa – are higher than the equivalent payments made the previous year.
“The trust’s dividend stream has been aided by our holdings in energy companies and international banks,” he adds. The fund’s top ten holdings include large holdings in Shell and NatWest. Over 70% of the fund’s 47 holdings are members of the FTSE 100 index.
De Uphaugh is in an optimistic mood. He thinks the whole sluggishness of the British economy has been exaggerated. “I love The Economist magazine,” he says, “but last year it ran a number of covers that were extremely negative about the UK economy.”
He adds: “Energy bills could increase in the short term, but they will start to come down in the summer. Petrol prices are now around £1.50 a litre, down from £2 a year ago. Yes, mortgage rates have risen and will likely rise a little more, but below the surface the economic news is not as bad as some feared. From a stock market perspective, the manager says “we are at the start of a renaissance in UK equities”.
One of the main recurring themes in the Trust’s portfolio is the focus on companies with strong competitive positions in their respective markets.
Furniture retailer Dunelm is a good example. “He took market share from his competitors,” says de Uphaugh. “He also pivoted well when Covid-19 hit, developing an omnichannel approach to sales. This has increased the earning power of its stores, with many customers buying either directly from the outlets or online and then collecting from the sites.
The trust has £120 million in borrowings at an average cost of 2.42%. Most of it is invested in the UK. The current annual fee is 0.52% and the stock exchange identification code is 0305233. The ticker is EDIN.
Shares in the trust, priced at £6.75, are trading at an 8% discount to the underlying assets.
With the UK stock market looking cheap compared to other international markets, de Uphaugh says the trust is offering a “double discount” to investors who believe UK stocks offer long-term value.