Edinburgh Investment Trust 13 April 2021

Edinburgh Investment Trust (EDIN) invests in UK equities in order to achieve capital growth and above inflation dividend growth. EDIN was managed by Invesco until March 2020, when the board handed the management contract to boutique firm Majedie Asset Management (MAM) after a beauty parade overseen by leading global consultancy Willis Towers Watson.

Lead manager James de Uphaugh and deputy manager Chris Field look to construct a diversified portfolio of between 40-50 stocks, adopting a ‘total return’ approach to stock analysis. Supported by the wider MAM investment team and with a team-based approach, James looks to ensure that stock-specific factors are the primary drivers of relative returns, though he will also input top-down considerations into stock analysis and portfolio construction. As we discuss under portfolio, the output is a portfolio that we would consider ‘core UK’ exposure, where significant divergence in returns are unlikely to be primarily driven by factor/style considerations.

Returns relative to the benchmark have improved over the past 12 months compared to the previous management regime though, as we discuss under performance, it remains early days. As noted under dividend, EDIN’s board has voiced its intention of maintaining dividends at the same level as the previous financial year going forward, and has substantial reserves available to support this. The historic yield on the share price is 4.8%.

EDIN’s discount of c. 4.6% (as at 31/03/2021) remains wider than that of the peer group average, but has narrowed significantly in recent months, with the board active in buying back shares.

EDIN’s yield of c. 4.8% looks attractive, backed as it is by significant reserves and with earnings seemingly remaining reasonably robust within the underlying portfolio. With the board seemingly committed to supporting this for at least the present financial year, we believe this can afford the management team flexibility in pursuing their ‘total-return’ investment style without needing to focus excessively on dividend generation. This seems attractive at the current time given the challenging macroeconomic backdrop and ‘dividend resets’ seen in much of the UK market, which is potentially giving rise to significant growth opportunities for many companies. Yet over the long-term, we believe this balanced, total-return focussed approach will likely see the dividend well supported, with James happy to collect dividends as a source of return where sufficiently attractive.

Active returns (relative to the FTSE All-Share) have been reasonably strong over the past 12 months under the stewardship of the new management team, though EDIN has trailed the broader peer group slightly. Whether this can be maintained remains to be seen, but significant outperformance since November 2020 suggests to us that the stated top-down views of the management team are feeding through to portfolio construction, whilst over the whole past 12 months we note the thematic diversity of stock contributors as an encouraging sign.