Edinburgh Investment Trust 02 December 2024

Under the management of Imran Sattar, Edinburgh Investment Trust (EDIN) has continued to build on its reputation as a strong core UK option for investors’ portfolios. With nearly three decades of investment experience, Imran brings continuity to the portfolio, having worked closely with the trust’s previous managers for many years before taking over as lead manager in February 2024, alongside a reinvigorated focus on a balanced, total-return-driven approach.

Over the past 12 months, EDIN has outperformed its benchmark by 5.4 percentage points, with much of this success attributed to strong stock selection. Key contributors include NatWest and Tesco, which benefitted from improved consumer and interest rate conditions, alongside Dunelm and AutoTrader, two cash-generative businesses that have reinvested capital effectively and delivered robust results.

Central to his strategy is identifying companies with an “economic moat” – those possessing structural growth potential and robust margins and benefitting from the protection of a material competitive advantage. Imran believes that companies with hard-to-replicate advantages can shield themselves from competitive pressures, preserving their market position and margins, whilst also having resilience and durability during periods of market volatility.

The UK, long seen as home to out-of-favour or undervalued sectors, currently features many companies trading at depressed valuations. Imran views this as an exceptional opportunity, noting many UK companies continue to boast the strong fundamentals and quality characteristics he is looking for. He argues there is potential for excellent long-term returns as the market corrects its mispricing over time. Accordingly, he has made several additions to EDIN’s Portfolio over the year, selectively adding high-quality, attractively valued companies with strong economic moats and robust cash flows, including the London Stock Exchange Group, Sage, and Compass.

EDIN yields 3.7% at the time of writing and trades on a 10.3% discount, wider than its five-year average of 9.1% and the AIC UK Equity Income sector average of 3.6%.

We think Imran Sattar is off to an encouraging start. We believe his preference to stay style-agnostic—balancing aspects of both growth and value strategies in pursuit of total returns—positions EDIN as a compelling core holding, offering exposure to high-quality companies with strong earnings growth. Whilst we acknowledge investors may take time to build confidence in a new manager, so far under Imran’s tenure this balanced approach has supported robust Performance and a growing Dividend, and we believe it could also serve investors well in volatile markets, particularly during periods where a single investment style is driving returns.

Despite strong relative performance over the past 12 months, EDIN’s Discount of 10.3% remains wider than both its five-year average of 9.1% and the sector average of 3.6%. Whilst broader market pressures may have contributed to this disconnect, EDIN’s relatively modest yield of 3.7%—in line with the FTSE All-Share Index but below the sector average of 4.3%—could have potentially deterred some income-focussed investors seeking higher yields.

That said, we think EDIN’s diversified portfolio supports a more robust dividend growth profile than many in its sector and when combined with Imran’s focus on quality, we argue this positions the trust well to deliver investors strong total returns. Consequently, we see the wider-than-average discount as an attractive entry point for investors and if the manager continues to outperform, we see scope for the discount to narrow, offering additional upside for investors.