The Edinburgh is an investment trust launched in 1889 – so it must be doing something right, even if this year’s results don’t look very spectacular. It invests mostly in UK stocks with the objective of increasing the fund’s net asset value (NAV) per share and achieving dividend growth in excess of UK inflation.
Its February 2018 update noted that there was an increase in volatility in the UK market allied to uncertainty over the speed and size of US interest rate rises. The trust has a holding of over £18m in Provident Financial and the trust’s portfolio manager, Mark Barnett, also noted that the Provident share price had risen markedly because it had settled with the Financial Conduct Authority (FCA) over the enquiry into Vanquis Bank. Provident has also issued a statement to the effect that it is going back to paying dividends.
In his review of the portfolio, Mark Barnett stated that the negative feelings towards UK companies and sterling that were instigated by the EU referendum were unwinding. For that reason he has increased the trust’s exposure to UK domestic businesses. Looking forward, he is interested in the pharmaceutical sector where he sees value potential and in oil and tobacco stocks. With sterling strengthening and possibly more difficult markets to come, he’s retaining his policy of diversification.
Share price performance
5 year performance shows a growth of 38%. However, the trust has not had a good six months to date and the share price is down 9%, compared to a FTSE All-Share drop over the last six months of 0.9%. The increase in the share price over the 12 months to December 2017 was 1.7 percent while the FTSE All-Share rose 13.1% so this is not exactly a stellar performance.
Net Asset Value (NAV)
This is the value of the stock portfolio owned by the trust. The past five years have seen NAV growth of 58.6% whereas the past 6 months have seen a drop of 6.1%. However, the full year up to 31st of December 2017 saw an Increase of 8.7% so it’s not all bad news (although in benchmarking terms, the FTSE All-Share Index rose 13.1% in that period). The fund is currently trading at a 9.1% discount to its NAV. In other words, the value of all the shares is 9% less than the value of the assets the fund holds. These discounts are not unusual in the investment trust industry, partly because these funds are slightly less popular than they were.
The fund’s six biggest holdings are in British American Tobacco, BP, Legal and General, BAE, Altria Group and AstraZeneca. Gearing is relatively low – a £150m borrowing facility and £100m of debenture stock. The fund also owns shares in other tobacco companies. Many ethical funds and investors won’t invest in tobacco companies. However, the main push for many of these companies is now the growing e-cigarette market, especially in the US and Europe. The total fund size is £1.25bn.
Charges and dividends
Charges are 0.57% including the annual management fee which is based on the market capitalisation of the fund. The total dividend last year was 25.35p giving a dividend yield of 4%. The dividend cover is 1.07, on a price earnings ratio of 23.
This fund is very much run by the manager – the Board doesn’t even specify asset allocations. It has a lot to do over the coming year but its conservative stance may prove justified if market volatility becomes more marked.