Edinburgh Investment Trust: June 2024 update

• Imran Sattar was appointed manager of the trust in February 2024, following the retirement of James de Uphaugh and Chris Field

• The manager’s focus is on providing a balance between longer-term income and capital growth

• The trust’s board has proposed a total dividend for the year to the end of March 2024 of 27.20p per share. This is a 3.8% increase on the previous year

How it fits in a portfolio

Edinburgh Investment Trust invests mainly in larger UK companies with an aim to provide a return in excess of the FTSE All Share index over the long term. The trust has a twin objective of increasing Net Asset Value (NAV) more than the FTSE All Share index and growing dividends per share faster than the rate of UK inflation. It could therefore fit as part of an income-focused investment portfolio or add exposure to larger UK companies in a broader, diversified portfolio.

Investors in closed-ended funds should be aware the trust can trade at a discount or premium to its net asset value (NAV).

Manager

Imran Sattar began his career at Mercury Asset Management in 1997, before joining Blackrock to manage UK equity funds. In 2018, he joined Majedie Asset Management to continue running UK equity funds and in Aprill 2022 joined Liontrust when the business acquired Majedie.

Following the retirement of experienced managers James de Uphaugh and Chris Field, Imran Sattar was appointed as portfolio manager of the trust in February 2024. He’s supported in managing the trust by deputy portfolio manager, Emily Barnard.

Barnard started her career at the Wellcome Trust before joining Majedie Asset Management in 2016. She joined Liontrust in 2022 following Liontrust’s acquisition of the business and forms part of the Global Fundamental team

Sattar and Barnard are also supported by the rest of the Global Fundamental investment team at Liontrust.

As with any investment trust the board oversee the management of the company for its shareholders. With five members it has a broad range of financial and investment experience which should ensure it’s able to hold the trust managers to account.

Process

Edinburgh Investment Trust mainly invests in larger UK companies with a small allocation to overseas companies. The objective is for returns to come from a balance of long-term capital and income growth. This approach limits the reliance on either income or capital to drive returns which could result in a smoother ride. The trust is relatively concentrated at 50 holdings, meaning that each investment could have a big impact on performance and increases risk.

Sattar looks for good quality companies with sustainable business models and quality management teams across the value and growth spectrum. His focus is on identifying growing companies with well-established economic moats.

In the year to the end of March 2024, Sattar made a number of changes to the portfolio. This included an investment in US data analytics business Verisk Analytics, and the UK listed bank, Lloyds. In order to fund these new additions to the trust’s portfolio, Sattar reduced the trust’s investment in the likes of defence company BAE Systems, and bank Standard Chartered.

The trust can borrow money to invest with the intention of increasing returns (known as gearing), but this could magnify losses in a falling market and increases risk. The manager can also use derivatives, which if used adds risk. The level of gearing as of the end of March (the end of the trust’s financial year) was 3.1%, down 1.6% from a year earlier. In addition, there may be some investment in smaller companies which, by their nature, can be higher risk and illiquid investments.

Culture

In recent years, Liontrust has acquired several smaller asset management companies. Acquisitions and other corporate changes can impact the culture of a business and unsettle the firm’s existing investment teams. We will continue to monitor the situation closely and keep investors informed if our views change.

Liontrust gives managers the freedom to manage their funds according to their own investment and market views. The company simply asks managers not to deviate from their investment processes. Each manager's funds are regularly checked by other senior managers at Liontrust to ensure they're staying true to their investment processes.

We like that all Liontrust fund managers invest a significant amount of their own money into the funds they run. This helps to align their interests with those of investors.

ESG Integration

The quality of ESG integration varies across Liontrust. The firm gives fund managers the freedom to run their portfolios according to their own investment and market views. The company simply asks managers not to deviate from their investment processes. Some managers have chosen to fully integrate ESG, while others are still developing their approach.

The firm’s Sustainable Future range of equity and fixed income funds do incorporate ESG analysis and invest to achieve positive change. Every team member is responsible for all aspects of financial and ESG analysis – ESG analysis is not farmed out to a separate team. The team produces regular insight articles, available via the Liontrust website. They also produce a Responsible Capitalism report, which explores the team’s views on a variety of sustainability-related issues.

They publicly disclose all voting decisions on a quarterly basis, although no rationales are provided. They also communicate their voting intentions to companies and engage with them on issues of contention to encourage change.

Cost

The annual ongoing charge to March 2024 was 0.53%. Investors should refer to the latest annual reports and accounts, and Key Investor Information Document for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund and Share Account or in a Junior ISA. Part or all of the annual charge is taken from capital rather than income generated, increasing the potential for your investment’s capital value to be eroded.

As investment trusts trade like shares, both a buy and sell instruction will be subject to our share dealing charges.

Performance

Over the 12 months to the end of March 2024, the trust’s NAV rose 13.4%, while its share price rose 8.9%. This compares with a return of 8.4% for the FTSE All Share index. Please remember that past performance isn’t a guide to future returns. The difference between the trust’s share price return and the NAV return is explained by a widening of the discount the trust trades on. This is despite the trust buying back 8.5% of the shares outstanding at the start of its financial year, which had the effect of boosting NAV by 0.8%.

Over this period, the main contributors to the trust’s performance were retailer Marks & Spencer, defence company BAE Systems and utility company Centrica. Not all of the investments in the portfolio performed well though. The trust’s investments in miner Anglo American and industrial business RS were among its weaker performers.

The board has proposed a total dividend for the year to the end of March 2024 of 27.20p per share. This is a 3.8% increase on the previous year. As was the case last year, this year’s dividend payment is not fully covered by revenues so is partially funded by using some of the trust’s revenue reserves. Reserves contribute 3.30p per share of the total dividend figure. This method of boosting the income paid to investors is used by investment trusts during tougher times, using reserves that have been accumulated during the good times.

At the time of writing, the trust trades on a discount of 9.29% to its net asset value (NAV) and has a dividend yield of 3.75%. Please remember that dividends are variable and not guaranteed.