Diversifying for growth | Edinburgh Investment Trust
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
Portfolio Manager Imran Sattar explains why the Edinburgh Investment Trust diversifies across stocks with different economic characteristics as well as sectors, discusses the most significant holdings and the outlook for the UK.
We like to diversify the Edinburgh Investment Trust within the 40 to 50 holdings in the portfolio by both companies and economic exposure. The portfolio currently is well diversified across stocks and sectors with a range of different economic characteristics.
The most significant positions in the portfolio (which we define as holdings whose weightings are most different from that of the index) are the retailers Dunelm, Marks & Spencer and Tesco, the energy company Centrica, and the banking group NatWest. The Trust has below average (versus the index weight) holdings in the pharmaceutical company AstraZeneca, Diageo, RELX, HSBC and the mining company Rio Tinto.
As at 31 March 2024, we held 5.6% of the portfolio in non-UK stocks. We use this element of the portfolio to gain access to businesses with the kind of characteristics or features that we seek but which are not available on the UK stockmarket. The principal non-UK holding was Verisk Analytics, a world-leading data technology business. Other overseas holdings include the pharmaceutical company Novartis, the semiconductor company Intel and Newmont Mining.
Rotork, a recent purchase, is an excellent example of the features we find appealing in a company. Rotork is a market leading industrials company in flow control and instrumentation products. It is exposed to attractive long-term growth drivers such as oil and gas upstream electrification and industrial process automation. Rotork is the market leader in pneumatic actuators and has a strong long-term track record of product quality and reliability.
Where it has had more challenges historically has been with organic growth, which the new chief executive is addressing through a strategy to focus the business on higher growth business lines, reinforcing and improving the customer value proposition, and improving innovation. If successful, this shift in the business should lead to mid to high single digit sales growth and gentle margin accretion over the medium term.
Outlook
From a macroeconomic perspective, we are mindful of changing expectations for the path of interest rate normalisation, as inflation remains more entrenched than expected. This period of heightened monetary policy uncertainty coincides with a period of elevated geopolitical risks, making a flexible and pragmatic approach to managing a portfolio important.
Looking forward, we expect risks to remain high, with 2024 seeing a significant number of elections globally in countries accounting for over 50% of global GDP and over 50% of the global population. China continues to face growth headwinds as the economy seeks to transition from an investment led to a more balanced model with consumption led growth. With consumer confidence in China intimately tied to the property market, this transition is unlikely to be smooth.
With the elevated uncertainty across a range of factors, our focus remains on owning businesses where growth is helped by exposure to structural growth tailwinds, or where there is a change in industry structure or company strategy which will enable future profit growth. Our confidence in Edinburgh Investment Trust’s portfolio comes from owning strong businesses managed by intelligent management teams executing on their business plans to drive total shareholder returns.
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
The Company is actively managed within its objectives and is not constrained by a benchmark. The Company borrows money to invest in The stock market within prescribed limits with The aim of enhancing returns. The Net Asset value (NAV) return of The Company corresponds directly to The performance of The securities in which it invests and The income from them. The share price, which will determine The return to The investor, will also be affected by supply and demand. Consequently, The return to The investor may be higher or lower than The underlying NAV return. We have classified this product as 4 out of 7, which is a medium risk class. This figure rates the likelihood of losing money in the future at a medium risk level. The use of borrowings may increase the volatility of the NAV and may reduce returns when asset values fall. The product may invest in smaller companies which may result in a higher level of risk than a product that invests in larger companies. Securities of smaller companies may be subject to abrupt price movements and may be less liquid, which may mean they are not easy to buy or sell. The product may use derivatives for efficient portfolio management which may result in increased volatility in the NAV.
DISCLAIMER
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.
Imran Sattar joined Liontrust in April 2022 as part of the acquisition of Majedie Asset Management where he was a Fund Manager for four years.