The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 15
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 13
The Portfolio Manager’s Core Investment Beliefs
Our competitive edge rests on the combination of our Global
Fundamental team’s structure within Liontrust and our flexible
investment style. Liontrust provides a stable environment in which
our fund portfolio managers operate, and our investment approach
produces portfolios that aim to deliver long-term outperformance on
a repeatable basis.
ACTIVE MANAGEMENT
Stock-driven. Share prices follow fundamentals over the long term.
Through our proven investment approach, we expect to outperform
over the long term, net of fees.
TOTAL RETURN STRATEGY
A focus on both capital growth and income. We take a total
return approach: investor returns should derive over the long term
from both capital appreciation and dividend income. We often
prefer companies with organic investment opportunities: as such,
we normally expect companies with growing profits – and share
prices – to contribute to returns. We view income as an important
component rather than the primary driver of investment return.
This aligns with the Company’s twin objectives.
LONG TERM
High conviction portfolio. We expect the portfolio to contain around
40 to 50 stocks. Holdings sizes reflect the conviction we have in each
company and our assessment of the upside and downside potential
of its share price.
Typical holding period of 3-5 years. This is an appropriate period
to ensure that underlying corporate fundamentals drive investment
returns. It is therefore also a sensible period over which to measure
an active manager.
Risk. We think of risk as permanent capital loss. To mitigate this, our
analysis of a company’s valuation is the first line of defence. Our risk
management process combines our depth of knowledge of the stocks
in the portfolio, plus separate oversight by Liontrust’s Portfolio Risk
Committee.
Gearing should enhance shareholder returns. One of the
advantages of an investment trust is the ability to borrow to
enhance equity returns. We therefore expect gearing to boost
investment returns over time.
FLEXIBLE INVESTMENT STYLE
Scale diseconomies. In our view, investment performance can
rapidly suffer if assets under management become too large. We
carefully manage capacity to ensure that the interests of existing
clients take precedence over new clients. The approach ensures
we retain a size advantage. It enables us to reposition the portfolio
– and those of all our other clients – quickly and efficiently when
required.
Open-minded approach. We do not have dogmatic style biases,
such as ‘growth’ or ‘value’. We are also prepared to invest in
companies that we identify as having scope for recovery through
management change, business transformation or an improving
business environment. We expect the profile of the portfolio to
evolve, depending on our assessment of individual companies, and
our reading of the economic and market background.
Disciplined, rigorous, fundamental research. In keeping with the
stock-driven nature of the portfolio, typically approximately three
quarters of our effort takes the form of in-depth stock research. The
remainder is spent on macroeconomic and geopolitical analysis.
Full Environmental, Social and Governance (‘ESG’) integration.
ESG-related considerations have financial implications for the
portfolio’s holdings. We prioritise and engage our holdings on their
key, material issues, many of which are ESG-related. The outcomes
from our in-depth analysis and engagements help form our
conviction level and investment decisions. In this way, ESG lies at
the heart of our investment process.
CAPACITY MANAGEMENT
DEEP INVESTMENT RESOURCE WITH GLOBAL
PERSPECTIVE
A close-knit investment team. Average experience for each
member of the team is 15 years. The team has been stress-tested
across various market cycles.
Challenge and debate. This is encouraged within a structured
risk control environment, with robust oversight processes.
Team members own Liontrust equity and coinvest in the team’s
investment strategies, which in turn underpins teamwork and
collaboration.