EDINBURGH: The £1bn trust is recovering and UK plc is next, its boss insists
Investment Trust Edinburgh, a £1bn fund investing primarily in UK stocks, has been enjoying something of a renaissance since new managers were appointed in spring 2020.
The share price has recovered significantly, but there is more to come, emphasizes senior fund manager James de Uphaugh, who works for the investment house Liontrust.
While the jury is still out on whether the UK economy will slip into recession or not, De Uphaugh remains optimistic. He believes the economy is not in bad shape – and that it is doing far better than it was last October, when energy bills soared and bond prices soared.
He also says there are many good British companies. The only thing he thinks is missing is that the better economic news is not reflected in the value of many UK stocks. “Stock markets are all about changes in perception,” he adds. “The current impression is that UK plc is in trouble.”
When the UK stock market is re-rated, De Uphaugh is confident the trust will do well, particularly as the fund’s share price does not fully reflect the value of the underlying assets. Its shares currently have a nine percent discount to the value of the assets.
The trust, previously managed by investment house Invesco, is invested in 50 stocks, mostly FTSE 100 companies. Although most of the stocks he holds have strong market positions, De Uphaugh says he takes a flexible approach and invests in a range of themes.
“The idea,” he explains, “is to have a dynamic portfolio that performs reasonably well in all market conditions.” We conduct extensive fundamental research on the companies we invest in and examine their market position. We also meet with management.”
For example, the portfolio includes companies that have recovered contrary to expectations. He describes this as “revenge of the incumbent” and includes Marks & Spencer among them.
“M&S is increasing its market share in its key food and clothing divisions,” says De Uphaugh.
“Its sales are booming while some of its competitors have fallen behind.”
Other key themes – eight in total – are “Darwinism” and “ESG rehabilitation”, where ESG stands for environmental, social and (corporate) governance.
“Whitbread, owner of the Premier Inn, is an example of Darwinism in action,” he says. “Premier is getting stronger and stronger.” The company does not pay booking fees to third parties and has a good portfolio of hotels. “It also operates in the budget price market, which is popular in the current cost of living crisis.”
As for ESG rehabilitation, he says both HSBC and Standard Chartered fall into this category due to their key roles in funding green initiatives. Since De Uphaugh and his team took over management of the trust, they have generated an 85 per cent return for shareholders. In comparison, its benchmark, the FTSE All-Share Index, has returned just over 50 percent.
The trust generates an income of approximately 4 percent and pays dividends quarterly. But unlike many competing income mutual funds, it cut its dividend in the fiscal year ending March 2022.
“It was a smart decision,” emphasizes De Uphaugh. “This means that we pay dividends to shareholders that correspond to the income we generate from the investments.”
The trust’s market ID code is 0305233 and its ticker is EDIN. The annual fees are 0.53 percent.