Friday, 1 June 2018

Edinburgh IT - Final Results


Edinburgh is one of the largest investment trusts on the market with assets of over £1.6bn. It is managed by Mark Barnett.

The trust invests primarily in UK securities with the long term objective of achieving:

1. an increase of the Net Asset Value per share by more than the growth in the FTSE All-Share Index; and,
2. growth in dividends per share by more than the rate of UK inflation.

The trust holds just over 50% FTSE 100 companies, 28% second tier FTSE 250 and 8% of the portfolio comprise overseas listed holdings. This is probably not one for ethical investors - of the top 10 holdings, 3 are tobacco companies, 2 oil & gas and one aerospace/defence and these 6 holdings together account for just over 25% of the portfolio.

Edinburgh has been one of the cornerstones of my UK income portfolio held in both Sipp drawdown and ISA for many years. The sum of £1,000 invested in 2008 would now be worth £2,487.

Results

It has recently issued results for the 12 months to 31st March 2018 (link via investegate).

This has not been a good year for Mr. Barnett. 

The Company's net asset value, including reinvested dividends, fell by -5.9% during the year, compared to gain of 1.2% (total return) for the benchmark FTSE All-Share Index. The trust has been adversely affected by holdings in a number of poorly performing companies such as Provident Financial, Capita, BT and a sell-off in tobacco stocks. There is more detail on this in the managers report. 

To be frank, I am quite capable of selecting my own portfolio of dogs at much less cost. I would hope with all the experience, research and analysis from a large team, the manager could do better than this.

Fortunately I hold this as one of a 'basket' of investment trusts and the returns from the likes of Finsbury, Scottish Mortgage and TR Property have compensated for the shortfall from EDIN.
 
Past Year - 3 of My UK Income Trusts
(click to enlarge)

Income per share over the year has increased by 5% to 29.3p. The board have proposed a final dividend of 9.2p making a total of 26.6p for the full year - an increase of 4.9% which is a small improvement on the previous year. Based on the current  price of 690p, the yield is therefore 3.8%.

Last year the trust underperformed the benchmark by -8% and this year it has fallen short by -6%. Over 10 years, the return is very good but over 5 years the record is below average and dividend growth is below par at just 2.5% p.a. This is the 4th year in charge for Mark Barnett after taking over from Neil Woodford in January 2014.

There are some managers who can consistently outperform the market but the evidence shows that over time most fail and this is why I have been moving a larger proportion of my portfolio into low cost index funds over the past couple of years.

Last year I trimmed back my holdings in this trust to give Mr Barnett a little more time to see if he is one of the few who can consistently beat the benchmark over the longer periods. I am now losing confidence and I think it will not be long before the remaining investment is sold and the proceeds reinvested elsewhere.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

8 comments:

  1. Do we take the risk of trying to select good managers or go down the route of getting average returns, which given the performance of the FTSE 100 since 2000 would mean not great returns. I will always take the chance and based on my portfolio will continue to do so.

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    1. Gareth,

      You put your finger on the issue for many small investors. Take a punt on a managed fund with the potential for a better return or accept the average from a low cost index fund. The index investor can never outperform the market but go with the managed fund and there is a high probability that as time goes by you will underperform the index...as I have seen with EDIN these past couple of years.

      It is a dilema and a choice and for me I hedge my approach with a core of global index and my smaller satellites of actively managed.

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  2. I’m also moving towards passives, because I’m tired of funding what is, no doubt, a very comfortable lifestyle for managers like this.
    However, what’s got my goat is what this manager (Invesco Perpetual) is doing to another smaller investment trust IPE (Invesco Perpetual Enhanced Income) which I think is outragous. I’ll not be touching anything from this manager. Your views on those shananigans would be interesting.

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    1. As I understand it Chris, Invesco have dropped IPE who were looking for a better deal on charges.

      Performance has not been great over the past year -4.4% compared to City Merchants 1.6% but see Henderson -5.4%. However over 5 yrs IPE has returned 52.7%, City (same managers) 44.3% and Henderson 38.1%.

      The main issue I would have is the performance fees which have made ongoing charges over 2% and I think this was an issue for the trust which is understandable but as it is quite small it does not have the same clout as some of the larger trusts.

      I don't know the nitty gritty of what has transpired between IP and the trust directors but it can be very frustrating for the small investor. At least we have the choice of where to invest and can move on if we find an investment is not producing the goods for us.

      Good luck with the move to passives.

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  3. Thanks for this, DIY. Those results are very poor and I'll keep an eye on this, with a possible view of switching to one of my other ITs. Seems like both Barnett and Woodford have lost their 'mojo' of late - either they're both just going through a 'bad patch' or they were both 'lucky' in the past?

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    1. weenie,

      Yes, both have been struggling over the past couple of years. It may be a run of bad luck for both and they make a strong comeback in which case now would be a great time to invest whist the trusts are offering a wide discount to net assets.

      Any manager can have a bad year but when it becomes 2 in a row I begin to wonder what is going on behind the scenes. Mr Barnett's other trust and Invescos flagship funds are all underperforming and huge sums have been withdrawn by institutional investors.

      As I am less in need of income now, it is a good opportunity to switch to either my Lifestrategy or global managed growth. I only hesitate as the discount is so wide which means selling for 10% less than the value of underlying assets. I will hang on for the next dividend and hope that sterling can get back above $1.40 in the meantime.

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  4. Hi DIY

    I'm slightly intrigued by your use of the phrase "small investors". How do you define "small investors"?

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    1. I regard myself as a small investor i.e. a self-directed private individual investing my personal savings (which could be a modest amount or a £ million) as opposed to institutional investors such as fund managers.

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