Wednesday, 29 May 2013

Edinburgh Investment Trust

Edinburgh IT, run by star manager Neil Woodford since September 2008, has issued its full year results for the year to 31st March 2013.(Link via Investegate)

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

1. an increase of the NAV 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.

20% of the portfolio comprise overseas listed holdings including Swiss Pharma, Roche and US tobacco firms Reynolds and Altria.

Share price total return for the year was 20.1% compared to an increase in the FTSE All Share of 16.8%. It is proposed to increase the final dividend to 7.8p making a total of 22.8p for the year, an increase of 3.6% on the previous years payout of 22.0p.

The returns have been excellent over the past 3 years, however this has given rise to the payment of a hefty performance fee of £11.5m which has increased the overall charges this year to 1.6% TER (compared to 1.0% in 2012). In addition the servicing of loans and debentures accounted for a further £19.5m - an additional 1.7% of NAV. The good news on the gearing situation is that the £100m 11.5% debenture will mature next year and this should significantly reduce borrowing costs thereafter.

Woodford likes to invest in large, well-established businesses that generate plenty of cash and are committed to returning some of this to shareholders via decent dividends. All he aims to do is to capture the biggest share of this future dividend stream as he can for investors. At the current price of 587p the yield is 3.9%.


Neil Woodford
By sticking with income investing and not following the latest investment fad, Woodford has produced superior, consistent, long-term returns. Also, by focusing on quality, defensive businesses, he has avoided the high-risk end of the market where the biggest losers lurk. For example, he ditched financial shares long before the credit crunch of summer 2008 blew up our banks and led to huge, taxpayer-backed bailouts. In the past year he has avoided miners which has been a positive for the portfolio.

He prefers a fairly concentrated holding of around 40 shares and favours big pharma, accounting for 25% of his portfolio and tobacco 20%.

One of the bigger decisions this past year was to completely offload Vodafone - previously a top ten holding - noting the cash flow cover has fallen to uncomfortable levels.

Edinburgh is one of the corner stones of my income portfolio in both Sipp drawdown and ISA. Obviously I would have liked a little more uplift in the dividend but cannot complain about the overall returns and happy to continue holding.

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