12:00 Wed 23 Dec 2009
Scottish Investment Trust left wrongfooted by cyclical rally
The Scottish Investment Trust has been left playing catch up after its defensively positioned portfolio saw it lag behind the benchmark in the year to end of 31 October.
Reporting its final results the trust said its net asset value (NAV) increased by 14.8% while the two comparative benchmarks, the global FTSE All-World Index and the UK FTSE All-Share Index rose by 18.3% and 18.4% respectively. In total return terms, the NAV which includes gearing of 18%, was up 17.6% compared with 22.0% for the FTSE All-World and 23.5% for the FTSE All-Share.
The trust's shares were trading at 419.6p at 11am on 23 December, which represents a discount to NAV of 12.9%. The trust did succeed in growing its dividend by 1.1% over the past year to 9.6p, up from 9.5p the year before. The trust is self-managed by John Kennedy.
The company said the majority of the underperformance during the past year was due to a defensively positioned portfolio in March and May when the markets surged ahead with cyclical stocks leading the charge.
Chairman, Douglas McDougall, said that besides stock selection sterling weakness also made a 'negative contribution'.
He added: 'Financials, in which we were under-represented, and other generally riskier shares advanced well ahead of the relatively defensive core portfolio as investors re-embraced risk. However, the portfolio was repositioned rapidly to a more cyclical stance and subsequently performed strongly in the period from the end of May to the year end.'
Looking ahead, McDougall said he expects corporate results and economic fundamentals to continue to improve as the effects of the authorities' extraordinary policy stimulus measures are felt. However, he warns of testing times ahead when the stimulus measures are withdrawn by central banks around the globe.
He said: 'Value in global stockmarkets is now much diminished following this rally. The timely removal of central bank and state fiscal support measures - not so early as to stifle the recovery and not so late as to spark inflation - will be a major challenge for the period ahead.'
Over the past three years, the trust's NAV has underperformed the benchmark, returning -1.21% while the FTSE WI World index rose by 4.77%.
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