Thursday 26 May 2016

Edinburgh IT - Final Results

Edinburgh is one of the largest investment trusts on the market with assets of over £1.5bn. It is managed by Mark Barnett who took over from Neil Woodford in 2014.

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 53% FTSE 100 companies, 23.5% second tier FTSE 250 and 15% of the portfolio comprise overseas listed holdings including Swiss Pharma, Roche and US tobacco firms Reynolds and Altria. This is probably not one for ethical investors - 4 of the top 10 holdings are tobacco companies and together account for just over 20% of the portfolio.

Edinburgh has been one of the cornerstones of my income portfolio held in both Sipp drawdown and ISA for some years. The sum of £1,000 invested in 2006 would now be worth £2,612 - the second best performer in the UK equity income sector behind Finsbury Gr. & Income Trust.

It has today issued its results for the full year to 31st March 2016 (link via investegate).

The Company's net asset value, including reinvested dividends, rose by 4.2% during the year, compared to a fall of -3.9% (total return) for the benchmark FTSE All-Share Index..

Income per share over the year has increased by 7.6% to 26.7p. The board have proposed a final dividend of 8.75p making a total of 24.35p for the full year - an increase of just 2.1% which is a small improvement on the previous year. The excess income has improved dividend reserves which now represent ~135% of dividends paid in the past year. Based on the current  price of 697p, the yield is therefore 3.5%.

I naturally have no complaints with an overall return some 8% above the FTSE All Share. This is the 2nd full year for Mark Barnett and he is building on the previous years out-performance of 10%. Maybe he is one of the few who can consistently beat the benchmark over the longer periods - time will tell.

Not all of my holdings have done so well in recent years. For example Murray Income has underperformed over the past three years. It is difficult to judge in advance which managed funds will do well and which is likely to under-perform. For this reason, I have tended to adopt a basket approach hoping that the combined average returns will give a better outcome than the index.

3 yr chart  EDIN -v- MUT -v- FTSE All Share Index
(click to enlarge)

In his report, the manager said :

"The collapse in energy prices and the relentless drive of digital technology have entrenched low inflation expectations such that, combined with the factors outlined above; the global economy faces an ongoing lack of pricing power. This in turn has restrained the level of turnover growth in many industries, while any rebound in energy prices or pick up in employment costs may not easily be passed on.

The overall implications for the UK stock market, which is highly global in its make-up, are that earnings growth in many sectors may disappoint. Given that valuations are not obviously cheap, overall returns from equities may be expected to be subdued for the time being. The volatility witnessed since the start of 2016, partly caused by nervousness over financial stability in China, is also likely to remain a feature of the investment landscape for the remainder of the year. The Company’s portfolio has changed relatively little in recent months, as the current investments continue to demonstrate the ability to grow earnings and dividends in this challenging environment".

TER for the year was a modest 0.59% although there has been a 9% uplift in management charges.

All in all, a very pleasing outcome - once again, a significantly better result than the benchmark index combined with a modest increase in the dividend ahead of inflation. I am happy to continue with this trust for the duration.

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