Imran Sattar: London Shareholder Event 2026

Trust overview & objective

 

A reminder of the objective of the Trust; it is to grow net asset value per share ahead of benchmark. And for us, that's the FTSE All-Share. And then to grow dividends ahead of UK inflation. In terms of how we think about investing, we are first and foremost bottom-up stock pickers. We invest across the spectrum; some growth, some value. A blend of some of the best companies in the market and a blend of some of the best investments available in the market. And we're happy to take long-term views and views with conviction. It is important to retain flexibility because just like there are economic cycles, there are also stock market cycles. And to be able to perform across markets, one has to have a pragmatic approach. Now, that said, we are fond of businesses that have an element of growth tailwinds behind them. Businesses that have economic moats.

 

This is a portfolio that has a total return approach. Now, I know that income is really important for you. It's important for me, but so is capital growth. And what we're trying to do is to optimise such that we're delivering attractive total returns for you, our shareholders. We aim to build a conviction portfolio of around 40 to 50 stocks, largely invested in the UK stock market, but also with the flexibility to own up to 20% in non-UK listed shares. Finally, gearing, it's one of the benefits of the investment trust structure. We have £120 million of long-term gearing at very low interest rates. So that should be returns enhancing. We announced the signing of an RCF, a revolving credit facility, think of it as a bank facility of £25 million, which gives us additional gearing flexibility. If there's one message I'd like to leave you with today, it's that we have conviction views. We're building a conviction portfolio and creating a long-term savings vehicle for you, our shareholders.

 

Fund Performance

 

So how have we performed? Well, performance, as you look on the left-hand side, has been very strong in absolute terms. And as you can see on the right-hand side, performance since inception, in absolute-terms, very nicely up triple digits, 153%. The NAV was up 136% against an index up 130%. So against the benchmark we're ahead modestly and that means that we've met the first part of the objective of the Trust. On the financial year ending March '26, so for the year ending 12 months to March '26, the Fund did not keep pace with a very strong UK stock market. And there were three key reasons for that. Firstly, the Trust holdings in the data and technology area underperformed on the back of AI disruption fears. Secondly, a small number of holdings disappointed operationally. And finally we didn't own or had underweight positions in some of the very strong performing areas in the UK market, principally the banks.

 

So to near-term performance, so this is for the current financial year to March '27, the first six months of the financial year, you can see the share price nicely ahead of the benchmark, the FTSE All-Share, and the NAV also ahead of benchmark. So improving performance. And then the second part of the objective, you can see dividends were increased very nicely. For the year ending March '26, the dividend was increased by 11%. And that leaves a CAGR, so that's the compound annual growth rate, over the last four years has been 6.6%. Again, nicely meeting the second part of the objective.

 

 

The drivers of performance

 

You can see here, on the positive side, Softcat contributed nicely. Now going back to the point about AI disruption, in the early part of that period, Softcat underperformed because the market thought it was a business that might get disrupted from AI, and Softcat is an IT value-added reseller. So it helps businesses spend money on technology, including AI. The shares recovered very strongly on the back of a strong set of results, and the market has come to our view that if anything, Softcat is a beneficiary from AI rather than an AI loser. So that contributed very nicely. Secondly, NatWest, it's one of the key banking positions that we have in the portfolio, produced fabulous capital generation, a lovely dividend, and share buybacks on top. Nice contribution from NatWest. Anglo-American, the diversified mining business performed strongly, unsurprising on the back of very strong commodity prices, copper in particular. And then Rotork, the industrial business, received a bid approach from ABB, again, a nice contributor to Fund performance.

 

That brings me to the detractors. So Rentokil, the pest control and washroom services business, performed poorly on the back of a profit warning. Now we flagged this as a very interesting self-help story at the AGM in July in Edinburgh. And we also noted that it's rare to find self-help stories that move in a straight line upwards and it's proven to be the case here at Rentokil. Now that said, we think this is a very attractive industry and Rentokil is the market leading business within that very attractive industry. Execution clearly has been poor and we're keeping a very close eye on it but we absolutely believe in the medium term potential of this very interesting business. And then the other detractors were the banks. We remain underweight despite adding to the banks over the last six months or so, HSBC detracted from performance. But overall, a good six months.

 

Investment Process

 

So how do we look after your money? Well, this is a summary of our investment process. I talked to you earlier about our flexible approach, and so we look far and wide. That said, we believe over the long-term, businesses with a growth tailwind, businesses that have an economic moat should outperform. And what we mean by an economic moat is companies that have attractive returns, attractive profit margins, need to sustain those returns. And so they need a barrier around it. We look very carefully for businesses that have that barrier to sustain their competitive advantage. So we have a tilt towards those type of companies. But as I said before, it is important to be pragmatic. And so we find opportunities across the spectrum, growth and value. Next, we think about portfolio construction very carefully. And for us amongst other things, that means ensuring a portfolio that is nicely diversified across the economic pie and diversified across themes.

 

Risk. It sits alongside portfolio construction and is another really important aspect of our investment process. I guess there's three things to say. Firstly, we think about risk carefully, us the investment team. Secondly, we interact very closely with the Liontrust internal risk team. And so they're quite helpful in ensuring that we're not taking any unintended risks. So risks are deliberate. And finally, again another advantage of the investment trust structure is the board oversight, which we very much value. And then valuation. It plays an important role in decision-making and the process. However, it deliberately comes at the end of the investment process, not the beginning. This, in a nutshell, is the way we look after your money, the investment process, and one that is very much unchanged since we were appointed to run the Trust about six and a half years ago.

 

 

Portfolio Changes

 

So what have we been doing in portfolios recently? Well, to give you a flavour, in terms of purchases, we've continued to add to the construction area. We've bought a position in SigmaRoc, the lime materials business, and added to our house building names Bellway and Persimmon. And that complements our existing positions in Marshalls, Ibstock, and Howdens. And so we've got about 5% in that area. We think the risk reward is very attractive in this space. Volumes are at a low point and any recovery will lead to significant profit growth because of operational gearing. We've added to the position in BAE Systems, the defence contracting business. We know the geopolitical environment has changed over the last two or three years and the outlook for defence spending globally is very attractive and BAE is a good play on that. Now all of these come with attractive dividend yields and growth squarely fitting in with the total return framework. Now in terms of how these have been funded, we sold down the positions in the consumer area, principally Whitbread and Greggs. So Whitbread, which is the owner of Premier Inn, which we thought was a really interesting self-help story given the turnaround potential in Germany. But the budget led to a very significant increase in business rates, specifically for the hotel sector, and it really did torpedo our investment thesis and the profit growth that we were expecting. So we sold out of that position and that just demonstrates our flexibility. And in Gregg's, again, a good asset in the long term, but we think that cash flow growth in particular is going to be constrained over the next two years. We also sold down the positions in Mony Group which owns the monysupermarket.com website business and trainline.com the internet ticketing platform business. Both are lower convictions than some of our higher conviction data names like LSEG, Sage and Relx, so we just consolidated around our higher conviction names. And finally, we took profits in Diploma and Rotork and two interesting industrial businesses. The latter, of course, had a bid approach from ABB. Both have done incredibly well, but we decided to bank some profits. These transactions on balance have been yield-accretive. And that's been very much deliberate.

 

Edinburgh Portfolio

 

This is a high conviction portfolio full of advantaged businesses, well set to deliver attractive profit and cashflow growth. You can see the portfolio is nicely diversified. A broad mix of exposure, starting on the left, defensive businesses like Unilever. And then as you move towards the right, some of the structural growth areas of healthcare and technology. And then, as you moved further right, some of them more industrial exposed areas of commodities, financials, industrials, and consumer. Deliberately diversified. Now, much of the recent changes that we've made to the portfolio in the last six months has been adding to the value part of the market. That is a function of two things; one, it's where our stock picking has identified interesting businesses. And secondly, a deliberate desire to have a broader, flatter portfolio given the range of outcomes that we see in markets. So the portfolio has evolved and that's very much deliberate.

 

Outlook

 

What is our outlook for macroeconomics, the markets and the portfolio? Well, the geopolitical environment remains challenging, not least in terms of what's happening in the Middle East and Russia, Ukraine. It's impacting all of us. We can see it from the fuel prices and the general inflation that's coming through the system. Not surprising given that the Strait of Hormuz is essentially closed, and you can see that on the left-hand side. Then there's AI. There's a lot to say here. I guess there's a couple of observations from me. Firstly, the middle chart. The expenditure by the hyperscalers in the US is huge, nearly $1 trillion next year. This infrastructure build out is not dissimilar to the railroad investments that were happening in the late 1800s, interestingly around the time when the Trust was originally set up. Now, what is the return on this CapEx? I don't have the answer for you, but I would say it's uncertain at the very least, and there's question marks around it. The second observation around AI is that it is absolutely having significant impacts across, multiple industries. And so we're having to think about that very, very carefully. And then there's government bond yields. You've seen a very meaningful increase in the last few months. Now, what does that mean? Well, the ramifications across the economic spectrum are meaningful. Firstly, equity valuations are struck off the risk-free rate, and government bond yields, right or wrongly, are deemed to be the risk-free rate. Secondly, US consumers, for example, are now seeing mortgage rates of over 7%. That's not happened in a long time. So there's a lot to think about, a lot to navigate in this market. And yet, stock markets around the world are actually performing quite strongly. That's on the back of pretty strong economic performance. The UK has seen a positive surprise to its GDP two quarters in a row. Again, we haven't had that for a while. The US economy is strong, partly because of that middle chart about AI infrastructure build out. And corporate profit performance is very strong. The corporate margins are at record highs. The share of GDP is also at record highs. The picture's a little mixed, and we're on balance, a little cautious on markets, but where we are very confident is in the companies that we own on your behalf.

 

We own a collection of businesses that we think will deliver very attractive profit growth, very attractive cashflow growth, and hence deliver attractive total returns. Our focus remains very much on constructing a portfolio that will deliver those attractive returns and one that is deliberately diversified across the market. Now it's difficult to tell what the economic weather looks like over the next 12 to 24 months, but our focus has been on building a conviction portfolio that can allow the compounding to happen.