Edinburgh Investment Trust Half Yearly Report - Flipbook - Page 9
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 7
upside to UK equities (see Outlook comment below) and as
such we are deploying the gearing in full, bar a normal c2%
cash balance.
OUTLOOK
In our opinion, UK equities are undervalued in absolute terms
and against peers. For example, the market’s free cash flow
yield is the highest of major markets. Even if you adjust for
the cyclical element of the market (i.e. allowing for the higher
exposure of the market to e.g. banks and oil stocks), it still
appears very attractively valued.
While it is hard to identify in advance a specific catalyst
that will ignite a rerating of UK equities, we do note that the
market has absorbed a lot of selling since 2016, particularly
by pension and retail investors. At the same time, we observe
a pick-up in interest in UK companies by overseas corporates.
Taking all this together, we believe there is potential for a
pleasant surprise from UK equities on a three year view.