Edinburgh Investment Share Discussion Threads

[chairman2] 08/12/2010 00:49

BobP

please dont look for much expertise from me - I came to the party late myself.

As a Woodford fan I cant help but notice that the performance here has
been better than his OEIC funds at Invesco. I believe part of that
is the narrowing of the discount - and one needs to watch that since
it represents a gearing effect on the underlying performance - good
in good times, making things worse when not so good.

For me this is a contrarian holding - hedging my bets elsewhere. I
am underweight UK large caps and this is (for me) a relatively
safe way to balance things out a bit.

[bobp] 07/12/2010 19:27

Greg and Chair2,

First of all thanks for your posts it's not easy to get a detailed grip on this one.

I'm thinking of dripping into this over the next 12 months or so as a bedrock for slow growth but with divis.

Any constructive thoughts you have on this would be appreciated.

Bob

[chairman2] 24/11/2010 09:54

water companies have a difficult job
they need to scream rape and blue murder at
the regulator, whilst telling investors
that cash flow from a regulated utility
is money for old rope.

Woodford is no fool - ST have been accident prone.
UU now have new management with no utility experience.
If Utilites share some of the characteristics of bonds
(See Grahan and Dodds Investment Analysis 1935)
then end of a falling bond yield decade maybe the
time not to be holding ST, Northumberland, UU etc.

expect opportunities to buy back in at significantly
lower levels and higher yields sometime in the
next few years.

[gregmorg] 24/11/2010 09:45

Mmm. On my earlier comment re the div of Severn Trent I see the EDIN manager was right but --only up to a point! The ST interim div was indeed cut-actually by 2.5%. However the chairman promised to increase the ST dividend by 3% OVER inflation for five years. ST did not mention which measure of inflation ie RPI or CPI but in the context of the five year promise that is a damned good statement!
One could see why N Woodford could get irritated at ST as it did warn earlier this year that the Water Regulator's tougher regime could lead to lower shareholder returns. This happpened with the interims but to then go on and give a very positive five year projection seems almost to be playing with the Stock market. However it tells one that the envisaged tougher regulatory regime turned out to be less tough than feared.

[gregmorg] 22/11/2010 11:39

Actually I see the manager has also recently sold out of his position in Severn Trent because of the tightening regulatory framework.He was very vocal on that score. Yet I cannot help but note that the ST projections are for an increased interim dividend tuesday ie tomorrow. Severn Trent has been a high yielder so it cannot get any easier for this manager to meet his/our dividend objective-excluding VAT/tax repayements!Not achieved so far but still lots of time--maybe!

[chairman2] 12/11/2010 17:48

gregorg

good pick

The wource of the confusion was the reports at the
time of the Deepwater disaster listng Woodford as
BP's second or 3rd largest shareholder across
all funds

clearly very out f date info and never corrected
and I never followed up either - sorry 'bout that

[gregmorg] 12/11/2010 11:20

Re my earlier post on BP. I knew I had seen the BP comment somewhere BUT WHERE?
I looked back and in the September 2009 interim management statement and saw this:

Extract from investment manager's comment EDIN statement Sept 2009

"Oil majors Bp and Royal Dutch Shell, as well as oil services group
Amec, were sold as I had concerns about the future viability of their
dividends. In my view, the global economy will continue to experience
significant challenges in the years ahead and I expect this to result in muted
demand for oil. As such, I expect the oil price to come under pressure,
creating doubt about the ability of these companies to maintain existing
dividend levels. It is becoming increasingly expensive to find and extract new
oil and gas reserves and with oil prices potentially weakening from current
levels so I believe that these companies may fail to generate sufficient cash
to cover both capital expenditure and dividend payments to shareholders."
END.

Not sure about all the reasoning as above but a good move nevertheless!

[gregmorg] 12/11/2010 10:56

Actually Chairman2 can I pick up on your comment of 7 Oct 2010 where you say RE EDIN performance " and BP has not helped in 2010."

My readings tell me differently, indeed EDIN did not get hurt at all by BP. From my readings EDIN did not have any BP in its portfolio across the disaster period. Woodford is on record for having sold the stock before hand. Very good timing unless there is a porky somewhere! I read before the disaster his view was the BP dividend payout was too high relative to the available revenue flows. He anticipated a rebasing at some stage and didn't want to wait around for that. It may have been expressed slightly differently but that was essentially it. Obviously it was a long term view but extremely good timing given subsequent events-- but investment needs an element of luck from time to time! Whether EDIN is back in the stock subsequently? Although that would be funny and v profitable, I suspect not reading the statement.

[chairman2] 11/11/2010 17:50

article on Citywire
repeating whats in the annual report

[gregmorg] 11/11/2010 14:32

Actually at the end of his statement the chairman refers to the Trust maintaining its "progressive dividend policy".Ignoring the partial VAT refund, the dividend has pretty well gone nowhere for some considerable time. Beats me!

[gregmorg] 11/11/2010 14:09

Steady as you go that's for sure. I have difficulty in understanding why the shares of this Trust stand at a premium to asset value allowing for debt at market value.

Woodford has a great repuation although one does feel this is down to a superior PR machine rather than great out performance. Stripping out the special dividend which purely reflects some of the over payment of VAT(but not all, I note although others with the same VAT refund over the last two years have mostly paid out all of it!)the Trust seems not to meet any objective re dividend growth and that is diappointing. Obviously Woodford believes that he can better use the increasing revenue flow within the Trust rather than than waste it on payouts to shareholders! Hopefully this will change at some stage but I really am unsure as to the positive hysteria built up over this manager. On balance,I guess I go with it as I have quite a few of these but I am dissappointed with today's figures.

[bobp] 23/10/2010 18:37

recommended page 3 of moneyweek under the M-S W article

[chairman2] 07/10/2010 13:55

OK so Woodward had a poor 09.

and BP has not helped in 2010

but surely someone as driven as he is by his own PR
will be moving exceptionally hard to get it right.

This has recently become much more fashionable -
(advisers love the presentation) but what do independent
but informed investors think?

[madengland] 29/1/2010 14:59

me too. My stats were imaginary. Not well worded, but looking back five years from the trough Mar09. I beleieve NW has positioned the portfolio well

[gregmorg] 29/1/2010 11:59

Madengland.
I fear you need to look at your IT statistics a little closer. Had Fidelity performed well against its benchmarks the reappraisal of the previous manager and subsequent move to Invesco Perpetual and its higher fees would never have happened! No IT holder in their right mind looks at the short term (although as we know lots of short terms make up etc etc).Admittedly Scott Dobbie has put his money where his sentiment is but the jury is out on the move.

I will be delighted if edin starts to perform and the income flow steps up a notch or so(I appreciate that, whatever is said elsewhere,Neil Woodford does not describe himself as an income fund manager-excellent or otherwise). I understand on the supposed positioning of this IT and I too am very depressed by the near term economic outlook. It seems to be 1976 to 1980 all over again.I will be more than happy to see the IT strategy work ie a significant uplift in NAV and in income flow. After all the latter is why I bought it.

[madengland] 29/1/2010 11:29

I think Neil Woodford has positioned the portfolio for what is likely to be a few tough years ahead. The rally has been over the last 9 months, and driven by liquidity not fundamentals, whereas Woodford has not chased that. I think when you look back 5 yrs from March last year, the risk/reward that you got from holding this IT will be strong. The last 9 months are not the measure

[gregmorg] 29/1/2010 09:45

Performance - Total Return

3 Months 1 Year
Share Price 6.6% 20.1%

Net Asset Value 5.9% 13.5%

FTSE All-Share Index 5.5% 30.1%

Source: Fundamental Data
To kiwi2007
It's simple. The only true measure is the NAV and dividend flow(on their own and combined) Share price is heavily sentiment and subjective. The three month nav period is too short a period to evaluate but the year's performance vs the All share speaks for itself ie it is disappointing. Given the recent PR placed in the media(and specialist media ie Investment Trusts)I expected better or an indication of better. Indeed, given N.Woodford's specific comments on dividends I could have expected a small uplift,given these figures,if just to underline his stated extreme confidence in the outperformance over the medium term. It makes me wonder now whether it was not agressive PR but damage limitation. Yes I have a lot of this stock and held them for some years so these things are very important. Fortunately, I do not hold any Dunedin although as well as EDIN I also hold PIG from the same stable(pretty poor performance also) as well as five others. Oddly enough the Fidelity IT has done rather well over the last year! Best not to think about that too much.

[kiwi2007] 28/1/2010 20:58

Could you clarify please gregmorg... as far as I can tell performance has been pretty good recently if compared to other similar trusts (I hold Dunedin and EDIN has easily outperformed that trust).

[gregmorg] 28/1/2010 16:33

And so much for paying premium fees to the manager. Ah well, the income generated by the fund has to go somewhere!

[kiwi2007] 23/8/2009 10:33

Latest monthly report out.

61.6% of the IT is focused on these 10 companies :-

AstraZeneca
GlaxoSmithKline
Vodafone
Imperial Tobacco - Ord & 9% Feb 2022
British American Tobacco
BG
BT
Tesco
National Grid
Reynolds American - US common stock

Portfolio review
The cyclical rally continued in July, led by the likes
of car related sectors, banks and miners. The
investment trust's lack of exposure to these sectors
had an adverse impact on returns relative to the
UK market. The investment trust was also impacted
by disappointing returns from the utility sector, as
the draft pricing proposals from regulator OFWAT
were less favourable than had been expected.
The substantial overweight position in BT Group
was positive, as the company's quarterly results,
including further improvement in the Global
Services division, were well received by the market
and prompted a sharp rise in the share price.
Strong results from major holdings British American
Tobacco and Rolls-Royce also contributed positively
to the investment trust's returns during the month.
There were limited changes during the month, as
we remain confi dent in the current positioning. The
recent strategy of adding to preferred holdings at
attractive levels was continued and this included
further purchases in respect of BAE Systems, Altria
and Reynolds American.

Strategy and outlook
We maintain our conviction that the combination
of issues which created the UK's current severe
recession will only be fully unwound over a
number of years. We believe that this process is
unavoidable and that the economy cannot return
to a period of stable and consistent growth until
it has been completed. Balance sheets at both
corporate and consumer level need to be repaired
and the UK's fi nancial system also needs to
complete its rehabilitation. Accordingly, we believe
that a prolonged period of little or no growth
will characterise economic performance for the
foreseeable future. Our caution on the outlook
for the economy is in contrast to our optimism
about the companies that dominate the fund,
which demonstrate key fundamental qualities;
sound balance sheets, consistent earnings and
rising dividends. We believe that these companies,
typically within the tobacco, utility, pharmaceutical
and telecom sectors, are best equipped to deal with
weak economic conditions and that they are cheap
relative to history and to other sectors. The rally in
cyclical sectors of the market has pushed valuations
in some areas to stretched levels, which brings
signifi cant downside risk in individual shares should
economic data disappoint, whereas the valuation
argument in favour of defensive sectors continues
to look convincing in our view.

And mine...FWIW...

[kiwi2007] 17/8/2009 11:06

Woodford puts Edinburgh Investment trust back on course

Last September, the board of Edinburgh investment trust appointed Invesco Perpetual as new investment manager. At that time, Neil Woodford, head of investment, assumed responsibility for the management of the company.

Woodford has constructed an exceptional performance record over the long term; during the 10-year period to 30 June 2009, his £7.9 billion High Income fund has given shareholders an annualised total return of 7.1%, comfortably ahead of the peer group average of 2.5%, while the compound return of the FTSE All Share index is just 14 basis points.

The manager has a distinct investment style and is comfortable running a concentrated portfolio of companies that are not overly exposed to the business cycle, are well managed and financed, and have the capacity to deliver sustainable earnings and dividend growth. Neil has been cautious on the UK economy and believes a sustainable economic recovery may be three to four years away, so his funds have a strong defensive bias.

Edinburgh trust has struggled in the recent cyclical-led recovery. While markets remain in 'hear no evil, see no evil, speak no evil' mode, this defensive bias is likely to continue to act as a drag. But any loss of risk appetite in broader markets could reverse the recent rotation into cyclicals, which would reignite relative and absolute NAV performance.

The manager sees parallels with his experiences towards the end of the TMT bubble, when his funds endured a similar period of underperformance as markets became similarly polarised. Although the cyclical rally may continue in the short term, the fundamental economic imbalances have not been addressed.

He has constructed a concentrated portfolio of high-quality companies, which he believes are profoundly undervalued. Those with the strongest and most secure dividend growth potential are trading at levels the manager has not seen for many years. These are unloved by the market but have the potential to deliver superior returns against a challenging backdrop.

The portfolio is overweight pharmaceuticals, tobacco, utilities and telecoms while banks are zero-weighted. Relatively high levels of gearing are deployed, for which the manager has full responsibility.

The shares offer an attractive yield of 6.3%, a healthy premium over the yield of 4.3% on the FTSE All Share index. We regard Edinburgh investment trust as a cornerstone investment within a diversified investment portfolio. It has much value for those investors sceptical of a V-shaped economic recovery.


Managed to add more of these to two accounts below 320p today... thought the price was running away from me last week....

[kiwi2007] 06/8/2009 10:34

This looks like an excellent defensive play as topvest says and maybe the market may be moving this way?.
Also I'm not sure that the market has taken into account that Neil Woodford has taken over and changed the overall portfolio quite dramatically. Out of oils and financials (though probably a little early?)

[topvest] 25/1/2009 12:21

Bought some anyway last week. May not be the bottom, but certainly not the "top" on a five year view!

[topvest] 14/12/2008 17:31

I quite like the look of their highly focused defensive portfolio. There largest 20 companies give 85% of the value and they are all very solid companies. c20p dividend/annum looks relatively secure. Will look to buy some of these below £3, if I get the opportunity.

[tiltonboy] 11/1/2006 16:14

g.j.a,

If the FTSE continues upwards, these will go with it. They also stand at a 15% discount to NAV, so you could argue they are still cheap.

tiltonboy