The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 11
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 9
Portfolio Manager’s Report
For the year ended 31 March 2022
JAMES DE UPHAUGH /
PORTFOLIO MANAGER
CHRIS FIELD /
DEPUTY PORTFOLIO MANAGER
For much of the last twelve months there
has been improving economic sentiment,
as western economies have emerged from
varying degrees of Covid restrictions.
However, much of the economic progress
has been overturned by the depressing
turn of events in Ukraine.
If the events in Ukraine are a reminder of anything,
they are of the importance of managing a
sensibly diversified portfolio. As a result, positive
contributors to the portfolio’s performance since
the start of the war have come from existing
holdings in sectors such as oil and defence stocks.
Naturally our core task is to meet the Company’s
two investment objectives – which are set out on
the first page of this document. As we said from
the outset of our appointment in 2020, we believe
the best way to meet the Company’s objectives
is to manage the portfolio on a total return basis.
We also believe that, over time, listed equities
provide a sound base from which to achieve
these objectives. To deliver them, we apply an
investment approach that looks for attractive
returns both from dividends and from capital
growth. Which of these two factors dominates at
any point in time is a function of market sentiment
and the strengths (or indeed weaknesses) of the
companies in the portfolio.
The income element of total return comes in
differing forms. In addition to ordinary dividends,
companies also have the option of paying income
to shareholders in the form of special dividends
– which by their nature are harder to forecast.
There are also share buybacks, which while not
income in any sense, are sometimes used by
company managements in lieu of cash payout
to shareholders. Buybacks are becoming more
common among UK-listed stocks – indeed about
40% of the stocks in the current portfolio have
ongoing buyback programmes. We are relatively
indifferent to these different forms of distribution
to shareholders; the key point is that capital
and income form the underlying bedrock of
Edinburgh’s returns to its own shareholders.
As the Chairman has noted, the team remains
the same, but our firm changed ownership during
the financial year. Our team approach and core
investment beliefs (which we describe in more
detail on page 13) remain the same. The flexible
investment approach, combined with in-depth
work on Environmental, Social and Governance
(ESG) factors, are at the core of our work.
INVESTMENT RESULTS
Over the twelve months to the Company’s year
end the Net Asset Value (NAV) rose 14.1% in
total return terms. The share price rose 10.6%.
These returns compare with the FTSE All Share
index return of 13.0%. It is pleasing to deliver
a second year of double digit returns since our
appointment, albeit those two years followed the
lows of markets around the start of the pandemic
in early 2020.
The discount, which moved out from 4.5% to 7.7%,
explains the slightly weaker share price return.
As the Chairman has explained in his report, the
Company has been buying back shares since the
start of the calendar year.
In keeping with the diversified nature of the
portfolio, prominent positive contributors to
performance have come from a range of different
sectors and industries. The biggest contributors
were Anglo American (commodity metal mining),
BAE Systems (defence), WM Morrison (the food
retailer that was acquired by private equity during
the period), Newmont (gold mining), Centrica (gas
distribution) and Tesco. We have long considered
the ESG issues facing companies such as BAE
Systems: to date we have been comfortable
with this long-standing holding. The sad turn of
events highlights the important reality of defence