Edinburgh Investment Trust Half Yearly Report - Flipbook - Page 13
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 11
PRINCIPAL RISKS AND UNCERTAINTIES
A detailed explanation of the principal risks and uncertainties
facing the Company can be found on pages 18 to 21 of the 2023
Annual Financial Report, which is available on the Company’s
website at www.edinburgh-investment-trust.co.uk
Since the publication of the 2023 Annual Financial Report
and as detailed above, the risks posed by the war in Ukraine,
inflation and the secondary effects of the COVID-19 pandemic
continue to be a serious threat to the global economy. In
addition, the recent tragic events in Israel and Gaza and the
potential for further escalation provide further risk to the
stability of the global economy. The Board continues to monitor
these situations closely and has been in regular contact with
the Manager and the Company’s other service providers to
assess and mitigate the impact on the Company’s investment
objectives, investment portfolio and shareholders.
Otherwise, in the view of the Board, these principal risks and
uncertainties are substantially unchanged from the previous
year end and are as much applicable to the remaining
six months of the financial year, as they were to the six months
under review.
The principal risk factors relating to the Company can be
summarised as follows:
Market Risk – a fall in the stock market as a whole will affect
the performance of the portfolio as well as the performance
of individual portfolio investments; it also includes interest rate,
inflation and currency risks; market risk may be impacted by
increased volatility during the continuing period of uncertainty
arising from the war in Ukraine, energy costs, supply chain
disruption and potential further evolution of COVID-19;
Investment Performance Risk – this is the stock-specific risk
that the stock selection process may not achieve the Company’s
published objectives;
Income/Dividend Risk – the Company is subject to the risk of
not generating enough income from its investments to meet its
objectives. The Board monitors this risk by reviewing income
and dividend forecasts and comparing them with budget.
The Board also considers the level of income at each meeting
and decides on the dividends to be paid. The Board can use
the Company’s income and capital reserves to supplement
dividends if needed;
Borrowing Risk – the Company has fixed long-term borrowings
through its Unsecured Senior Loan Notes. If the Company’s
investments fall in value, gearing will result in an increased
adverse impact on performance;
Share Price Risk – the Company’s prospects and NAV may not
be fully reflected in the share price;
Corporate Governance and Internal Controls Risk – the Board
has delegated to third-party service providers the management
of the investment portfolio, depositary and custody services,
registration services, accounting and company secretarial
services and therefore relies on these service providers to
manage the associated risks;
Reliance on Manager and other Third-Party Service Providers
Risk – the Company has no employees, so is reliant upon the
performance of third-party service providers for it to function
particularly the Manager, Company Secretary, administrator,
depositary, custodian and registrar;
Physical and Transitional Climate Change – climate change
may pose significant risks to investments, as it affects the
operations, value, business model and dividends of the
companies we invest in. We also face the challenge of adapting
to a low-carbon economy and responding to the expectations of
investors, regulators and policymakers. Our Portfolio Manager
evaluates these risks and considers the potential impact of
climate change on each portfolio holding. You can find more
details on this process in the s.172 statement on page 23 of the
Annual Report. We also diversify our portfolio by investing in
businesses across different regions, which helps us mitigate
the risk of location-specific weather events. We monitor and
review the climate change related risks regularly and follow any
new guidance;
Emerging Risks – the Company may be affected by unexpected
macro-economic changes in inflation, interest rates and energy
costs. It may also be affected by the changing regulatory
landscape around ESG issues. Whilst these risks currently exist,
the extent of them is yet to fully emerge but they are regularly
assessed by the Manager and the Board.
Other risks such as business, cyber security, strategic, policy
and political risks, as well as regulatory risks (such as an adverse
change in the tax treatment of investment companies) and the
perceived impact of the Manager ceasing to be involved with
the Company, are all considered.