EDINBURGH INVESTMENT TRUST backs Britain with ‘double discount’ offer

At the end of next month, the management team responsible for investment fund Edinburgh will quietly celebrate three years at the helm of this £1.1 billion listed fund. It will be good work 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 took over the reins with Chris Field after the board fired manager Mark Barnett of investment house Invesco. Since the pair began reviewing their portfolio in spring 2020 – against the backdrop of the pandemic – they have made surprising returns investing in UK equities.

As of early April 2020, shareholders have been rewarded with a total return of 86 percent – ​​a mix of income and capital. To put this in perspective, the average UK equity income investment trust posted a return of 64 percent and the FTSE All-Share Index a gain of 60 percent.

It hasn’t all gone smoothly. While the trust provides an attractive annual income of about 3.6 percent, the board approved a dividend cut for the year through the end of March 2022. The Uphaugh describes it as a “recalibration” and insists that dividend income is now within the “envelope of expectation.” In the current financial year, the two quarterly payments declared so far – both 6.4 pa share – are higher than the equivalent payments made in the previous year.

“The trust’s dividend flow has been aided by our holdings in international energy companies and banks,” he adds. The fund’s top ten positions include major holdings in Shell and NatWest. More than 70 percent of the fund’s 47 holdings are members of the FTSE 100 Index.

The Uphaugh is optimistic. He believes that all the gloom and doom about the British economy is exaggerated. “I love the Economist magazine,” he says, “but last year it had some covers that were overwhelmingly negative about the British economy.”

He adds: ‘The energy bill may rise in the short term, but in the summer it will start to fall. The price of petrol is now around £1.50 per litre, up from £2 a year ago. Yes, mortgage rates have gone up and are likely to creep up some more, but under the surface the economic news isn’t as bad as some feared.’ From a stock market perspective, the manager says: ‘We are in the early stages of a renaissance in UK equities’.

One of the main themes running through the trust’s portfolio is an emphasis on companies with strong competitive positions within their respective markets.

Furniture retailer Dunelm is a good example. “It has taken market share from its rivals,” says de Uphaugh. It also thrived when Covid-19 hit and developed an omnichannel approach to sales. This has increased the earning power of its stores, with many customers either purchasing directly from the outlets or online and then collecting from the sites.”

The trust has £120 million in loans at an average cost of 2.42 per cent. Most of this is invested in the UK. The ongoing annual fee is 0.52 percent and the trust’s exchange identification code is 0305233. The ticker is EDIN.

The trust’s shares, priced at £6.75, are trading at an 8 per cent discount to the underlying asset.

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.