Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
This investment trust may not stay cheap for long
‘Uncertain’ is a benevolent description of the outlook for 2017. Unknowns range from how Donald Trump may govern in the US to the result of Brexit negotiations. Against this backdrop, trusts with international dimensions and impressive, inflation-beating dividend track records should be on shopping lists.
One exemplar is Scottish Investment Trust (SCIN), trading at an 8.2% discount to net asset value (NAV) that has scope to narrow. We think now is a good time to buy at 794p as the market has only just started to cotton on to major changes.
Why we like this Trust
Founded in 1887, this self-managed global equity trust aims to provide investors with above-average returns and dividend growth ahead of UK inflation.
It invests in a diversified portfolio of international equities, while achieving dividend growth ahead of UK inflation. Dividends have been maintained or increased every year since 1982.
It has cut costs in recent years to have one of the lowest ongoing charges (0.45%) among its peer group.
Edison Investment Research’s Sarah Godfrey said last November that investor perceptions of the investment trust may still focus on a longer-term lacklustre performance record.
Godfrey says more recent performance has been strong, helped by sterling depreciation which has increased the value of overseas assets. The shares are up nearly 20% over the past six months and twice as good over the past 12 months.
Change in strategy
The trust switched to a contrarian stance in October 2015. Manager Alasdair McKinnon seeks to exploit the behavioural biases of investors and in the words of Warren Buffett, ‘be greedy when others are fearful and fearful when others are greedy’.
Edison’s Godfrey notes that stocks are split into three main categories. ‘Ugly ducklings’ are the most out-of-favour companies such as GlaxoSmithKline (GSK) and Macau casinos operator Sands China (1928:HK).
‘Transformers’ are those where operational improvements are underway but the market doubts the sustainability of the recovery. Stocks include largest holding Treasury Wine Estates (TWE:ASX).
‘Improvers’ are stocks viewed favourably by the market yet where the scale of the opportunity remains underestimated, including Microsoft (MSFT:NDQ) and Severn Trent (SVT). (JC)