The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 7
THE EDINBURGH INVESTMENT TRUST PLC / OVERVIEW / 5
Chairman’s Statement
GLEN SUAREZ / CHAIRMAN
DEAR SHAREHOLDER
RETURNS
After a long and difficult period in the aftermath
of the Financial Crisis, and then Brexit and most
recently a challenging two year period during the
Covid pandemic, markets now have to contend
with a crisis in Ukraine and all the economic
consequences that flow from that.
As you know, the Company has two long-term
investment objectives: first, to increase Net Asset
Value per share in excess of the growth in the FTSE
All-Share Index; and secondly, to grow dividends
per share in excess of the rate of UK inflation.
The situation in Ukraine is above all a humanitarian
crisis, which puts all other matters firmly in the
shade. Few of us surely remain unmoved after seeing
pictures of dead civilians, bombed out cities, train
stations packed with people fleeing in fear. And,
tragically, it is happening on our own continent.
All these events have created a huge economic
challenge in the UK market. Both the Office of
Budget Responsibility and the Monetary Policy
Committee of the Bank of England have recently
published gloomy forecasts for the economy over
the next few years. The Monetary Policy Committee,
in particular, expects the country to be teetering
on the edge of recession for the next two years,
with inflation peaking at over 10% this year, slowly
returning to its 2% target by 2025 after several
interest rate rises and big falls in living standards.
Despite this difficult backdrop, the Company has
continued to make progress.
It is now two full years since we appointed
Majedie and James de Uphaugh as Manager of the
Company – and I am pleased to report that the
Company has recorded its second consecutive year
of strong investment returns – both absolute and
relative to the comparator index. So, we continue
to make solid progress in our objective of making
the Company once again a core holding in UK
equity portfolios.
While the Majedie team remains the same, the
ownership of the team has changed after Liontrust
Asset Management PLC acquired Majedie Asset
Management Limited on 1 April 2022. The
Board has reviewed the transaction after it was
announced on 7 December 2021. James will
continue to be the Portfolio Manager and we are
satisfied that the change of ownership does not
materially change the way in which the portfolio
will be managed. We expect (and have been
promised) that the change of ownership will bring
enhanced marketing resources.
For the first objective, it is encouraging to be
able to report another year in which the growth
in Net Asset Value (NAV) has exceeded that of
the FTSE All-Share Index. This is despite the
profound headwinds facing the economy over this
period. As the Portfolio Manager’s Report on the
following pages sets out, the diversified nature
of the portfolio has contributed to this result.
This bottom-up stock-led investment approach
is driven by the Portfolio Manager’s total return
philosophy, incorporating environmental, social
and governance factors throughout. The return
was also boosted by the effect of the Company’s
borrowings and, to a smaller degree, share
buybacks. Both these are discussed in more detail
below, and their numerical impact is set out in the
table on page 15.
The Company’s NAV growth on a total return basis,
i.e. including reinvested dividends, was +14.1%
over the financial year ended 31 March 2022 and
the share price returned +10.6%. These compare
with a total return of +13.0% for the FTSE All-Share
Index. The equivalent returns on a capital only
basis are +9.3% for the NAV, +5.7% for the share
price, and +9.3% for the index.
The difference between the NAV total return
and capital return is explained not only by the
dividends paid by the Company, but also because
the Company has been using some of its reserves
to pay dividends to shareholders (discussed in
more detail below). Over the past three years,
the Company’s NAV return has been -1.5%
cumulatively, with the Company’s benchmark
index returning +5.3% over the same period. Over
the past five years, the Company’s NAV return has
been -10.7% cumulatively, with the Company’s
benchmark index returning +5.0% over the same
period. In all these cases, the NAV is stated after
deducting debt at market values.
I would like to take this opportunity to remind
shareholders that investment returns, especially
from an active manager such as our own, are
not delivered in a linear fashion. While it is
satisfying to be able to report two years of positive
absolute and relative returns, at some point the