Scottish American 01 February 2019
Disclaimer
This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Scottish American Investment Company (SAINTS) is a differentiated equity income trust, aiming to deliver real dividend growth by increasing capital and growing income. Distinctively, the trust invests globally in equities, but it also has the flexibility to invest in other areas such as bonds and directly held commercial property.
2015 saw a shift in strategy– moving from a strategy that targeted solely high income – to a portfolio targeting income growth. So far, this has had a transformative effect on total returns relative to peers and the benchmark, and at the time of writing SAINTS is the best performer in the Global Equity Income investment trust sector over one, three and five years. Since the change in strategy, the trust has delivered NAV total returns of 63.8%, ahead of the average trust in the Morningstar IT Global Equity Income sector (42.9%), the IA Global Equity Income sector (35%), not to mention the benchmark – the FTSE All World index (50.3%) over the same period.
SAINTS has grown its dividend every year for the last 38 years and done so at a rate equivalent to 2.9% per annum over the last five. Having paid an uncovered dividend in 2015 and 2016, 2017 was marked by a covered dividend having been paid. Currently only three of the four dividends have been declared for FY18, but the trust is currently yielding 3.2%.
The trust is structurally geared via a somewhat expensive fixed-rate debenture that expires in 2022. Relative to the majority of its peers - which on average have gearing of around 11% - the gearing level of around 17% is fairly aggressive. Much of the gearing has been invested in property and fixed interest, which helps to offset some of the extra volatility that this level of gearing might otherwise be expected to engender.
SAINTS has consistently traded on a premium over the past few years, trading in a range between a premium of about 6% and a discount of around the same level. However, over the past year or so, the trust’s premium rating has been relatively consistent. The current premium of c.3.8% compares to the average of the last year of 3.9% and is marginally higher than the current sector average (-2.4%).
SAINTS offers investors exposure to a wide array of securities and, although an equity fund first and foremost, offers peripheral exposure to property and fixed interest.
Since the shift in strategy in 2015, the trust has consistently outperformed the Global Equity Income sector, beating the peer group over one, three and five years. Alongside the strong capital appreciation, SAINTS has continued its 38-year track record of growing its dividend. A particularly noteworthy move has been the ability to go from an uncovered dividend in 2015, to a fully covered dividend in 2017. This will help to give investors peace of mind, in particular should we continue to see volatile global markets.
There is little surprise that SAINTS has consistently traded on a premium over the past few years, given this achievement. The current premium of c.3.8% compares to the average of the last year of 3.9% and is marginally greater than the current sector average (-2.4%).
| Bull |
Bear |
| Strong performance relative to peers |
Trading at a premium |
| Impressive track record for dividend growth |
OCF at the costlier end of the sector |
| Fully covered dividend |
Fund History
