Edinburgh Investment Trust (EDIN) has had a difficult time over the past three calendar years in terms of its net asset value (NAV) performance, lagging the return of the FTSE All-Share index, albeit with positive returns in 2016 and 2017. This is partly because the trust invests in out-of-favour areas, including domestically-focused mid-cap companies, the valuations of which are particularly depressed.
Exposure to low valuations
Discount to NAV
Good manager record
Low charges
Brexit risk
Discount has been wider
But Richard Troue, head of investment analysis at broker Hargreaves Lansdown, says: “Edinburgh invests in solid UK businesses that will almost certainly survive Brexit. Some are more reliant on consumer spending, [but] others are truly international, or sell products we’ll still buy regardless of what happens, such as AstraZeneca (AZN) and BP (BP.). They’re out-of-favour, undervalued businesses that the fund's manager, Mark Barnett, thinks are well managed and in good financial health. This is important because, as well as aiming to grow your investment over the long term, Mr Barnett tries to pay high and rising dividends. The emphasis on unloved businesses, and a bias to companies reliant on the UK economy, hasn’t helped recent performance. But we don’t think these companies and this approach to investment will be out of favour forever. In the meantime, the trust is on an attractive discount and has the potential to pay good dividends while you wait patiently for long-term growth.”