Edinburgh Investment Trust's bias towards smaller companies has enabled it to outperform the FTSE Al...
Edinburgh Investment Trust's bias towards smaller companies has enabled it to outperform the FTSE All Share over the year to the end of March.
Over that time period the trust's NAV rose by 11% compared to a rise in the FTSE All Share of 7.5%. A 3% overweight exposure to smaller companies and a sizeable weighting in new economy stocks added value, according to Mike Balfour the chief investment officer at Edinburgh Fund Managers. Balfour assumed responsibility for the trust's overall strategy in January 1999 after a period of sustained underperformance. In the year to 31 March 1999 the trust's NAV fell by 0.5% against a benchmark return of 4.1%.
Peter Walls, investment trust analyst at Credit Lyonnais, said many people were surprised at how the trust has turned around its performance. He added that the trust was worth a look, particularly as it is trading at a discount to NAV of 15%.
Apart from stock and sector selection the trust's NAV was enhanced by 1.7% by the board's decision to buy in 10.2% share capital. Since the year-end, the NAV has further benefited from the trust's 2.3% holding in Robert Fleming.
Looking forward Balfour believes the prospects for the UK equity market for the second half of the year are reasonably good as long as US inflation is kept under control.
He said: "Strong economic performance in the US and the UK has led to increases in interest rates. Until recently these rises had occurred despite no material rise in inflation. If inflation, particularly in the US, were to rise materially from here then interest rates would have to be increased more than is presently anticipated by equity markets. If this happened, the outlook for the UK equity market would not be good."
He added that evidence was just beginning to emerge that economic growth in the US and the UK is likely to slow over the next 12 months.
Given the mild correction in equity markets since the end of the financial year, and the probability that interest rate rises are beginning to have their desired effect, Balfour believes the prospects for the UK equity market in the medium term are reasonable.
Over three years to 17 May the £1.3bn trust is ranked seven out of 15 in the Standard & Poor's UK general peer group. Over the period its share price rose by 41.8% compared to an average rise in the sector of 39%.
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